Why You Need to Track Your Contract Language

Conventional wisdom among contract managers is that contract language needs to be as precise as possible. The reasoning is that you need to cross all your t’s and dot all your i’s so that you minimize every single possible risk.

However, there are occasions where you need to avoid complexity, leave certain items unregulated, or modify existing clauses. Let’s take a look at why you need to keep track of language in your contracts.

1. Keep More Than One Contract Template

When your business first started, you probably spent time with a lawyer or legal advisor to create a master contract template that would keep all of your transactions bulletproof. As time went by, your company kept growing, you kept on piling up new clients, and you forgot all about your contract template.

The same language that got you here, won’t necessarily take you there. Depending on your industry, it’s very dangerous to rely on a single contract template. As your enterprise grows, you need to evaluate your contract’s clauses and terms to determine if they require changes.

Furthermore, you should evaluate whether or not it makes sense to develop different contract templates for different companies or industries. For example, does a contract in the financial services industry meets the requirements of one for the oil and gas industry? Your team of contract managers should evaluate contract templates at least on an annual basis.

2. Automate Process of Clause Changes

A major disadvantage from paper-based contract management systems is that if your managers only have printouts available to work with their clients, how do you know what clauses are the managers modifying, crossing out, or penciling in? The convenience of crossing off an entire clause or manually changing the terms from 30 to 20 days may expose you to unnecessary risk. Even worse, you may not find about those changes until it’s too late.

A contract management system automates and simplifies this process in several ways. First, it provides your contract managers a library of pre-approved options for clauses. This takes the guesswork out of determining the allowed range for changes. Second, this system provides each employee a login so that you can track activities. This provides transparency to all contract processes and makes it clear who made what changes. Third, the system may provide automated alerts whenever an user deviates completely from pre-approved language. This is useful to keep clear documentation for internal and external auditing purposes.

3. Differentiate Between Domestic and International Contract Language

In a December 2014 article from the IACCM, author Katerina Peterkova Mitkidis brings up an important point: a company may have to keep different pre-approved contract language for contracts executed abroad. Given the relevance of social responsibility throughout the last few years, Mitkidis focuses on supplier’s code of conduct (SCC).

This brings up another important reason why you need to keep track of your contract language. If you keep on negotiating with the same contract and you keep on getting rejected over and over again, the culprit may be that your SCC may be too specific or restrictive.

What works in one country or region may not necessarily work in others and your contract management system needs to have that flexibility.  Some regions may require to keep the language in your contracts more open so that parties can adjust that language to a changing regulatory environment. If you make it too restrictive, this may a deal breaker.

Just like when making changes to your clauses, you need to keep track of these international contract templates in your library of contracts. An enterprise contract management system is an efficient way to

Takeaway

Keeping track of the language in your contracts is very important. Three key reasons to keep track of your contract language are the need of more than one contract template, the necessity to automate changes made to clauses, and the importance of differentiating between domestic and international clauses.

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