7 Ways to Mitigate Contract Risk
By David Parks
Over the last few months I’ve been writing and talking a lot about risk management. It’s an increasingly important topic for anyone involved in contract management, whether you’re a General Counsel, Head of Procurement, VP of Finance, Contract Administrator, Director of Sales Operations, or Paralegal.
In this latest article — part 4 in our risk management blog series — I’ve outlined 7 ways to mitigate contract risk using contract management software. In prior blogs on risk management, I’ve addressed risk types, identifying risk, and assessing the probability and consequence of risk. In case you missed them, here are links to those articles:
Part 1: Overview of 4 Common Risk Types
Part 2: How to Identify Risk in Your Contracts
Part 3: How to Assess Risk in Your Contracts
The purpose of any risk management process is to mitigate as many risks as possible. That’s why contract management plays a big role in any risk management strategy because risk is part of every legal agreement.
Legal teams mitigate contract risk by incorporating specific language such as: indemnification, insurance, cyber security, limited liability, governing law, termination, and warranty clauses. Some other important risk factors to address in your contract management process include unauthorized access to contracts, lack of contract compliance and governance, broken contractual obligations, and missed renewal and expiration dates.
Our contract intelligence platform can help ease and automate your risk mitigation through numerous features. These features help mitigate contract risk in ways that would be impossible to efficiently execute manually or with make-shift contract management tools. Here are seven examples of how to mitigate contract risk with our platform.
1. Eliminate Missed Milestones and Obligations with Alerts and Notifications
Missing automatic contract renewals or conditions that are activated by reaching certain milestones are risks that result in significant financial consequences. In addition, they are completely avoidable using our software. You can easily set up automated alerts, tasks, and calendar reminders linked to the associated contract data record to stay on top of critical contract milestones. It’s a great example of how our contract management software helps mitigate contract risk because you are no longer dependent on manually tracking dates and you have the benefit of improved compliance by keeping an archived history for audit purposes.
2. Regulate Who Can Access Contracts with Role-Based Security
Setting up role-based permissions allows someone to read or write certain document or contract types but denies them access to others that would be unnecessary or inappropriate for them to view or edit. It prevents unauthorized users from seeing or editing contract details which mitigates the security risk of having confidential and propriety information fall in the wrong hands.
3. Protect Contract Data Using Encryption
Another key to protecting your contracts from the risk of unauthorized access – particularly from outside the organization – is to encrypt all your document data. The best contract management software encrypts information at rest and in transit using the latest encryption standards. Data at rest refers to any data that is stored within your contract management system. Data in transit refers to any data sent externally to or from your contract management system to a user or other application.
4. Increase Compliance with Clause and Template Libraries
One of the biggest creators of risk is non-compliance and one of the most common reasons for non-compliance is using the wrong language in a contract. Creating clause and template libraries in our contract management software ensures that anyone assembling contracts is using the latest preapproved language from the legal team. This helps mitigate contract risk inherent in language that hasn’t been properly legally vetted. You can also apply your organization’s business rules around which clauses and templates to use under specific circumstances such as when to apply a cyber security clause.
5. Maintain Contract Version Control
Maintaining contract version control is a risk factor when multiple parties are redlining the same document. It’s imperative to track changes by user and allow them to simultaneously review and redline documents directly in the contract management system. That way, you avoid missing, duplicating, or using inaccurate data that can result from emailing back and forth edited documents. It’s also important to easily track and manage any contract amendments, addendums, and terminations.
6. Enforce Business Processes Using Automated Workflows
Each stage of your contract lifecycle should have documented contract workflows based on business rules that anyone involved in the process must follow. This ensures compliance to your processes to mitigate contract risk associated with missed steps or approvals. It also helps to provide evidence of compliance in the event of an audit.
By building and triggering workflows within our contract management software, you can eliminate the need to manually track and facilitate each step required in the contract’s lifecycle.
7. Secure Approvals with E-Signatures
Electronic Signatures get documents signed faster and are more secure than paper signatures. They have been legally binding for over 16 years thanks to the ESIGN Act of 2002. E-signatures carry a digital record about who, when, and where a document was signed to ensure authentication and help with audit trails. E-signatures mitigate contract risk because they prohibit tampering with contract approvals and the possibility of misplacing a hard copy of a contract. They also improve a contract approver’s experience by supporting mobility. Contracts can be signed anywhere on virtually any device.
Takeaway
When it comes to risk management, the three main steps include: identify, assess, and mitigate. This article looked at 7 ways to mitigate contract risk and how contract management software can not only help but play a major role in that effort. After all, there are risks associated with every contract which is why good contract management practices should be a cornerstone of any risk management effort. Schedule a demo of our contract management software to learn how it can help you mitigated risk.