Businesses enter into contracts with other parties to deliver goods or services to customers. These contracts can be simple or complex. Consequently, rigorous contract management is needed to fulfill clients’ needs. By employing contract governance, businesses are assured that contracts are being met and services are of high quality.
By establishing a strong contract governance framework, you can ensure that your business relationships are built on a foundation of trust and mutual respect. This ultimately leads to more successful and productive partnerships.
In this article, we will discuss the ins and outs of contract governance.
Table of Contents
- What is Contract Governance?
- Importance of Contract Governance
- Common Challenges in Contract Governance
- Tips for Creating a Strong Contract Governance Framework
- Contract Governance Best Practices
- Strategies for Successful Contract Governance
What Is Contract Governance?
Contract governance is managing, enforcing, and modifying a contract between two or more parties. Contract governance involves setting rules and procedures for contract administration and determining who can make decisions about the contract.
Good contract governance ensures that the contract is carried out as intended, prevents misunderstandings and disputes, and guarantees contract success. A strong contract governance framework protects the parties involved and maintains the integrity of the contract.
Importance of Contract Governance
Effective contract governance ensures that the contract is successful. It can help prevent issues that could potentially damage the relationship between the parties.
There are several reasons why it is important to govern a contract:
- To ensure that the terms of the contract are followed and carried out as intended.
- To prevent misunderstandings or disputes between the parties.
- To protect the interests of all parties involved in the contract.
- To establish clear roles and responsibilities for all parties involved.
- To provide a framework for resolving any issues or disputes that may arise during the course of the contract.
- To maintain the integrity of the contract and the relationships between the parties involved.
Common Challenges in Contract Governance
There are several common challenges that organizations face when it comes to governing a contract:
Complexity. Contracts can be complex, with multiple clauses and provisions that are difficult to understand and manage.
Lack of standardization. Different departments or business units within an organization may have their own contract templates and processes, leading to a lack of standardization and consistency.
Limited visibility. It can be difficult to get a complete and accurate view of all the contracts an organization has in place.
Manual processes. Many organizations still rely on manual processes for contract management, which can be time-consuming and prone to errors.
Risk management. Organizations need to identify and manage potential risks associated with contracts, such as compliance issues or disputes with suppliers or customers.
Change management. Changes to contracts, such as renewals or amendments, can be challenging to track and manage.
Training and expertise. Ensuring that staff members have the necessary skills and knowledge to manage contracts effectively is important for effective contract governance.
Tips for Creating a Strong Contract Governance Framework
Here are some tips for creating a strong contract governance framework:
- Clearly define the roles and responsibilities of all parties involved in the contract.
- Establish a process for making changes or modifications to the contract.
- Set clear guidelines for how disputes or issues will be resolved.
- Determine who has the authority to make decisions or take actions related to the contract.
- Include provisions for regular reviews and audits to ensure that the contract is being carried out as intended.
- Communicate clearly with all parties to ensure everyone understands their roles and responsibilities.
- Establish consequences for non-compliance with the terms of the contract.
- Consider seeking the advice of legal counsel or a contract specialist to help create a strong and effective contract governance framework.
Contract Governance Best Practices
Your company’s reputation, profits, and productivity will suffer if its governance is not treated seriously. This is why your company needs to make an effort to adhere to the best practices for governing a contract:
Improve Contract Visibility
Complete contract visibility is necessary for effective contract governance. You cannot expect to use a single source of information if your business holds its contracts in many places and formats.
This raises the possibility of contract uncertainty, a false impression of performance, and things like legal certificates expiring unexpectedly. Visibility entails more than simply being aware of your contracts’ locations. It also requires being capable of seeing all important dates, such as the deadline for a service or renewal.
Contract governance can be difficult to achieve if you are still employing programs like Excel and Sharepoint. Contracts and pertinent files should be saved securely in a contract repository that is offered by specialized contract management software.
Identify Key Contracts
After compiling the contracts, you need to define the most crucial contracts in terms of value and complexity. This will enable you to allocate your assets where they are most needed. It will also establish the level of governance essential for each contract.
However, you should still apply management practices even to lower-stakes contracts. A contract might occasionally be subject to a spot check if someone notices something suspicious or if it is chosen for a random audit.
Track All Decisions and Changes
Your company’s focus on manual processes could easily divert attention from contract governance. This could then lead to the following problems without you knowing:
- ineffective supplier performance
- failure to deliver products and services
- improper expenditure and high costs
- non-compliance with regulations
- unreliable reporting
By using contract management software to automate your processes, you can assess such processes and quickly spot the problems above. One ideal software you can use to streamline the process is Fill.
Upon automation and standardization, there is more to it than just simply eliminating contract risk. This also allows your system to utilize an auditable trail which gives you a clear picture of the whole activity, from
- when an escalation was requested
- why it was requested
- who is in charge of handling it; and
- what steps have been undertaken.
Assess Any Possible Risks
The foundation of a successful business partnership is effective communication, collaboration, and commitment. This means that for both pre- and post- contract signing, your company must have risk-assessment procedures in its contract governance framework.
These measures consist of initiatives like:
- evaluating the viability of a contract
- saving current certificates that demonstrate compliance efforts
- scoring risks based on probability and effect
- advising your staff about potential risks
- pinpointing the hazards that should be prioritized
- considering worst-case situations upon contract breach
Assure All Commitments Are Delivered
You may maximize the value of the deals you enter into by looking further into a contract and developing KPIs. Automation will speed up the performance monitoring procedure by helping your company to monitor and evaluate data instantly.
Contract management software keeps track of all previous data, including quality evaluations, obligation compliance, and commercial value. This ensures that agreements are regulated with the correct info.
In the end, businesses develop a structure for contract governance to guarantee that commitments are followed although priorities change.
Strategies for Successful Contract Governance
Several strategies can help achieve successful contract governance, including:
- Clearly communicate the contract terms to all parties involved.
- Establish a process for monitoring and enforcing compliance with the contract.
- Be proactive in addressing any issues or disputes that may arise.
- Foster open and transparent communication with all parties involved.
- Regularly review and assess the effectiveness of the contract governance framework.
- Make adjustments as necessary to ensure the success of the contract.
- Seek the advice of legal counsel or a contract specialist if needed.
- Document all decisions, actions, and communication related to the contract.
- Foster a culture of integrity and accountability among all parties involved.
- Employ tools such as software to help simplify the contract governance process.
Fill: An Effective Platform for Contract Governance Process
Governing a contract is now easy, thanks to Fill. Fill is an eSignature solution that allows smooth and secure contract signing. We can assure you that your eSignature is legally binding and your data is protected.
With our audit trail log feature, you can track down all of the contract’s activities, leaving no room for contract risks. What’s good is that our log is real-time, meaning you can view the activity while it happens.
You can also use our contract management templates, which let you create a contract in just a few minutes. What’s more, Fill has a military-grade 256-bit encryption that promises optimum data safety. Moreover, we are compliant with HIPAA and GLBA.
Strengthen your partnerships in just a few clicks. Sign up for free today.