Creating a Contract Checklist for Risk Management Success
Your first defense in business are the contracts that govern your company’s commitments. While each agreement carries an inherent risk, you can mitigate most concerns using the terms and conditions of every document you sign as well as the proper management and obligation tracking of those agreements. A contract checklist for risk management can help you establish a process that identifies, communicates, and resolves exposures without the need for legal resources getting involved during every stage of the life cycle.
During the contract review and negotiation stages, identifying specific risks and allocating each party’s responsibility should be a priority. A failure to notice subtle nuances in language, understand definitions, and having a shortage of technical input could all lead to a contract situation where your business ends up with all regulatory and financial liabilities. In addition, failure to have visibility into your commitments, insecure storage of agreements, and inefficient negotiation and execution time frames can all lead to unnecessary risk. Establishing a contract checklist for risk management can help reduce your exposure and ensure you only accept the appropriate amount of risk.
Establishing a Contract Checklist for Risk Management
Certain contracts influence your operations and your teams need to know the exact conditions that may put the company at risk. Wherever possible, you’ll want to transfer or mitigate risks within the language of the agreement and inform your resources about their responsibilities. Contract clauses, definitions, quality addendums, schedules, and technical scopes with precise specifications are how you effectively mitigate risks within any agreement.
Drawing up a contract checklist for risk management can help transfer, mitigate, or manage risks effectively in your organization. When compiling a risk management checklist, consider the following items during your planning stages.
Keeping Track of All Changes and Amendments
Contracts are living documents that may continue to exist for years after the initial agreement was executed. During the lifetime of the agreement, documents, addendums, and updated schedules may become pertinent to the agreement’s commitments. Each change to the contract’s terms and conditions can introduce new risks into the process. Activities such as changing suppliers, employing new resources, and signing up new clients, require a clear, concise, and efficient contracting process.
Keeping track of every change to a draft document means you can plan and anticipate future changes before it becomes a major risk. Instead of cramming all contractual work into a single, final review before signing the agreement, you should verify every change, consider the implications, and quantify the probability and consequence of the risk involved. Based on these assessments, you can then provide your feedback in the document for all interested parties to see, comment, and recommend changes on.
Remaining Transparent About Your CLM Process
Vendors need to know what rules, regulations, and delivery considerations apply and what the customer expects during each stage of the contract. Whether you are the buyer or the seller, you’ll need a system that grants access to all stakeholders to the final terms of the agreement to ensure the execution phase runs smoothly.
You’ll need to verify that everyone:
- Understands the scope
- Knows the schedule and receives updates if it changes
- Communicates the critical paths that could trigger certain clauses in the agreement
The scope of service needs to be precise and reasonable while the schedule should have achievable time parameters. Payments and holds should have clear language that explicitly defines the responsibilities (or liabilities) of both parties in financial terms (if any).
You may need to ask questions like:
- Have we clearly articulated all expectations between the parties?
- Are the rewards clearly defined while the risks expressly stated?
- Is there a fair change management process in place that considers unforeseen events?
- What are the compliance requirements and have we allocated the risks to the parties most capable of managing them?
Expert Collaboration during Contract Negotiation and Approval
To ensure you identify, understand, and clarify all the risks in any agreement, you’ll need both legal and technical resources to participate in defining the scope of work or services. The more complex the service or product is, the more input you’ll need from subject matter experts. Involve these resources in every step of the process to identify and resolve issues early and clarify any responsibilities regarding technical scope as soon as possible.
Ensure each agreement has clear definitions, designations, and dates included. You’ll also need to clarify all roles and responsibilities. Use standards and best practices to ensure suppliers provide you with the quality products and services required. Each agreement should contain your specifications, a list of acceptable standards, and clearly defined roles and responsibilities including a copy of the schedule. Your team should review any proposed changes to these items before approval.
Compiling a Contract Risk Management Checklist
To enhance your contract management processes, use a software solution that helps you control, automate, and streamline every aspect of the lifecycle. A system that allows you to capture changes, host all documents in a secure cloud environment. automate alerts and workflows associated with certain obligations and business rules, and grant access from any device will improve your CLM process while enabling you to mitigate risks effectively.
You can create a contract checklist for risk management that covers the following:
- All non-standard agreements need legal review before approval
- Warranties and disclaimers shouldn’t be universally applied in every agreement
- Limitations of liabilities can only apply if they fall within regulatory frameworks
- Specify the expectations, contingencies, and promises within the agreement and automate alerts to appropriate parties when they are due
- Have documentation, communication, and query resolution process included in the contract
- If any dependencies exist, make sure the associated risk falls on the responsible party
Using Cloud CLM for Improved Risk Management
To maintain control over all the risks inherent in every agreement, cloud-based contract lifecycle management (CLM) software can help keep everyone informed about the latest developments. You can set up different teams, create standard templates, populate vendor info quickly, and define standard clause libraries. With cloud CLM, your team has access to all relevant information from any device, ensuring your resources are never outside of the loop. You will also have tremendous security and control over all your legal agreements using roles-based and features-based permissions ensuring only appropriate people have access to the proper information.
Once you have an agreement in place, you can also store and manage the supporting documents in the system such as a Certificate of Insurance (COI) or Statement of Work (SOW) to ensure a complete and accurate audit trail for every contract. And with automated workflows and alerts you can guarantee that your business rules are followed and obligations are never missed.
Whether you set up your system to speed up your contracting cycles or gain better oversight, contract management software helps you maintain control of the entire contract process. With the right contract management platform, you can identify, mitigate, and manage all risks with complete visibility and accuracy. With collaboration tools, a central document repository, and enhanced security you can ensure you execute every agreement effectively and quickly.
To see ContractLogix in action or to discuss how we can help you establish a contract risk management checklist, request a demo, or get in touch with us today.