Contract Obligations Checklist – A Master List for Tracking
Oct 25th, 2022
How well does your organization track its contract obligations? Have you ever missed a deadline? Has a partner ever missed a deadline, and you didn’t realize it? Do you know all the obligations you’ve committed to in every contract you’ve created?
If you want to better manage your contract obligations and eliminate missed deadlines, you need a master contract obligations checklist. Follow this checklist with every new contract you create, and you’ll be in better control of all your company’s contracts.
Key Takeaways
- A contract obligation is a legal commitment to provide some payment, good, notification, or service to another party
- It’s often difficult to identify obligations in a contract—and establish ownership of each obligation
- To better manage contract obligations, establish a contract obligation checklist that starts with a clear understanding of what you can commit to and includes creating a separate and detailed deliverables section in each contract
- The easiest way to manage contract obligations is with contract management software, such as Contract Logix
Understanding Contract Obligations
An obligation is a duty to do something. A contract obligation is to do something as specified in a contract. Contract obligations are legally binding, which means if you don’t fulfill your obligation, the other party can take legal action against you. For that reason, contract obligations include some form of risk.
In short, a contract obligation is a legal commitment you make to provide something or some service to the other party. You may have contractual obligations to some parties, while they may also have contractual obligations to you.
Most contract obligations are conditional obligations in which you agree to pay or provide a good or service to the other party in return for some action on their part. You may agree to ship them your product in return for receiving their payment. Or you may agree to pay someone in return for receiving a good or service. Your obligation is conditional on the other party fulfilling their obligations.
SOURCE: Corporate and Business Law via YouTube
Challenges in Contract Obligations Management
There are many challenges to successfully managing contract obligations. The three main challenges involve time, ownership, and visibility.
SOURCE: Created by Michael Miller
Time-Consuming Identification
One of the biggest challenges in managing obligations is identifying them. It is especially true if you’re still managing your contracts manually. Chances are your organization has contracts stored in multiple repositories—some in this department, some in that department, some in this location, and some in that location. A recent survey found that 90% of legal professionals have trouble locating individual contracts—let alone all the obligations in all those contracts.
Lack of Visibility
Obligations management is even more challenging when contracts are not clearly written. Poorly-conceived contracts often “hide” important obligations in overly complex contract language instead of separating them where they’re clearly visible. Another driver to lack of visibility is accessing the information in the contract. If contracts are scattered throughout the organization, it’s impossible to get a clear picture of all obligations. This lack of visibility makes it extremely difficult to identify all the obligations in a contract, resulting in missed deadlines and undelivered deliverables. (Poor contract management and missed deadlines can cost a company up to 9% of annual revenue.)
Unclear Ownership
Just because an obligation is written into a contract doesn’t mean it’s clear who or what department in your organization is responsible for fulfilling that obligation. Unclear ownership of obligations often results in a game of “hot potato,” where no individual or department wants to take ownership. This lack of accountability can lead to unfulfilled obligations because all parties in your organization say it’s not their job.
Creating a Contract Obligations Checklist
To avoid these potential obligations management pitfalls, you must create a pitfall-proof contract. That means making sure all obligations are:
- Clearly spelled out
- Clearly understood
- Clearly assigned to specific positions or teams
To create a contract with iron-clad obligations clauses, follow the steps in this contract obligations checklist. If you do everything right, there’s less chance of things going wrong.
1. Know What Is and What Isn’t Achievable
One avoidable problem with contract obligations is making obligations you can’t fulfill. You shouldn’t commit to a certain date if you know you can’t make that date—nor should you hold the other party to impossible deadlines and deliverables. Make sure all your obligations are not only achievable but reasonable.
2. Recognize Obligations in Advance
Know just what you can commit to before entering negotiations. That means having a firm grasp not only of what’s achievable but also of what your company wants to commit to. Don’t get sucked into agreeing to a difficult obligation during tough negotiations.
3. Place All Obligations in a Distinct Section
When you’re writing your contract, don’t sprinkle obligations throughout different sections of the document. Place all your obligations in a separate and clearly labeled deliverables or obligations section. Bullet-point or otherwise distinguish each deliverable, so important obligations are buried in other text. Make sure all obligations are clearly visible and easily found.
4. Clearly State All Obligations
It’s easy to bury obligations in obfuscating legalese. Drop any confusing language so anyone reading the contract can clearly understand all the details of each obligation.
5. Include as Much Detail as You Need
Speaking of details, take all the space you need to explain each obligation in excruciating detail. You don’t want to leave anything out or leave anything to chance. Spell it all out in as much detail as necessary.
6. Don’t Leave Anything Open to Interpretation
Along the same lines, don’t use fuzzy language or waffle over the specifics. If you leave something open to interpretation, chances are others will interpret it differently than you intended. Make it clear who’s responsible for what, when, and how many—no waffling possible.
7. Make It Clear Who’s Responsible for What
It’s also important to clarify who is responsible for every obligation in the contract—not just your company and the other party, but departments and individuals within your organization. You want to establish ownership of each deliverable upfront in the contract itself, so there’s no arguing over who does what after the fact.
8. Highlight All Due Dates
Take pains to highlight the due dates associated with each deliverable. Don’t hide the deadlines in the contract text—separate them, bold them, and draw figurative red circles around them if necessary. Make it clear when each deliverable is due, so there’s no confusion about that.
9. Incorporate Some System for Notifications
It’s good to be clear about deliverables and deadlines, but clarity doesn’t matter if no one knows a deadline is approaching. You need some system in place to notify key players when a deadline is approaching so that you and the other party meet all contractual obligations.
10. Utilize Contract Management Software to Automate Obligations Creation and Tracking
You can manually accomplish every item on this checklist by writing cleaner contracts, tracking deliverables with a spreadsheet, and other acute attention to detail. It’s possible to do it manually, but it’s difficult. A much better approach is to employ contract management software, such as that offered by Contract Logix, that automates the entire contract management process. Contract management software helps create contracts with:
- Clear deliverables sections and language
- Detailed obligation tracking
- Automatic notification of upcoming deadlines
Why do all the work by hand when Contract Logix can do it for you automatically?
Let Contract Logix Manage Your Contract Obligations
Contract Logix’s CLM Platform is a feature-rich contract management solution that automates the contract process from start to finish. It does an especially good job managing contract obligations and includes an automatic notification system to alert the right people in your company of upcoming deadlines. It’s the easiest way to manage your contract obligations checklist — and the entire contract lifecycle.
Contact Contract Logix today to learn more about efficient contract obligation management.
Looking for more articles about Contract Management? Check out our previous article “Why FDA 21 CFR Part 11 Compliant Contracting Software is Critical for Life Sciences Organizations“.