Avoid Contract Irregularities With A Reliable Contract Management Software

Avoid Contract Irregularities With A Reliable Contract Management Software

Written By
Joy Cunanan
Updated on
November 16, 2022
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Contracts are agreements made between two or more parties that confer corresponding rights and legally binding duties. 

They are the cornerstone of all commercial partnerships, and they can be as straightforward as one party providing a good or service to another in exchange for payment of consideration. Parties are protected by conditions they mutually agree upon by turning agreements into contracts with clear and legally binding provisions, and either of them can take action to enforce a valid contract or seek remedies in the event of a breach, as we’ve discussed thoroughly in our previous blog post

Any irregularity in a contract may lead to penalties in varying degrees, depending on the level of breach. A recent incident involving the Singapore Ministry of Home Affairs (MHA) shed light on the consequences in the event of contract irregularities involving public contracts. MHA filed police complaints over “possible irregularities” in the quotations submitted for two construction contracts following an audit conducted by the Audit-General’s Office (AGO). There were quotations for star rate items — those not listed contracts and usually used for contract variations resulting in higher costs — that were not sufficiently assessed. Among the issues raised by the AGO were the following: 

  1. There was no assurance that MHA actually got the total value for the amount they paid. 
  2. There were unexplainable gaps in the valuation pertaining to the contract variations. 
  3. There was insufficient documentation to support the contract variations for day works. 

You may be wondering how a public contract such as this could suffer from seemingly avoidable issues. On the surface, it may appear that keeping track of changes in contract provisions and valuations is simple. However, the sheer number of back-and-forths between parties especially in volatile contracts makes it extremely challenging in the absence of a single platform to negotiate, annotate and modify clauses. 

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Consequences of Contract Mismanagement

Disorganized and Decentralized Documentation

A strong audit trail of document alterations and the tracking of contract versions are essential for effective contract administration. Unfortunately, your company may be keeping track of different contract versions using separate processes in different places. Additionally, local file storage might lead to the loss of important contract revisions that could compromise the performance of a contract.

Consider a scenario in which you save your contracts manually using filing cabinets, disjointed digital workflows, email servers, and shared disks. The security, usability, and management of your contracts may be jeopardized in that situation. They are therefore easy to lose.

Your outdated versions of contracts may bleed through during the contract approval stage if you don't have version control for your contracts. Contracts may mistakenly contain phrases and language that are inappropriate. Your company may pass up on chances and advantageous provisions that were there in recent but unread contract versions. This may also lead to a lack of clarity on imperative duties, obligations, and deliverables.

Maintaining version control, enforcing contract security preferences, keeping track of important dates and milestones, and supporting archiving and retention regulations can all be challenging with manual contract storage techniques.

Given that versions can be ambiguous and tasks and milestones are challenging to determine and track, the shoddy contract storage mechanisms described above can leave your contracts exposed, susceptible to theft, disorganized, and all but useless.

Missed Renewals Leading to Lost Business

Knowing when your contracts automatically renew or terminate is essential because failing to keep track of these dates may result in extra expenses. For instance, if a business is unaware that a contract is due to renew automatically, it may be forced to continue paying for a service that is no longer necessary.

Auto-renewal clauses are a common problem because they can be found in leases, insurance policies, vendor contracts, software agreements, and many other types of contracts. Failure to renew a contract can result in lost business, therefore failing to pay attention to contract expiration dates can also affect a company's bottom line. 

Furthermore, if a business continues to create goods in accordance with a contract after it has expired without realizing it, it may end up with an expensive surplus. Finally, the dates of contract renewal and termination offer fantastic chances to revise your agreements and achieve better terms. You'll have plenty of time to renegotiate your contracts before they renew or expire if you keep track of these milestones.

Regulatory and Contractual Violations

While some employees could be tempted to use outdated templates to create new contracts, if a template isn't current with the most recent regulatory requirements, a contract may not be legally compliant or enforceable.

A company may have chosen to alter its contract templates for business purposes in addition to regulatory worries. An employee can be omitting the new recommended contract language by using an older template.

While contracts receive a lot of attention during negotiations, it can occasionally be challenging to monitor a contract after it has been signed. However, failing to keep track of the terms of your contracts entails legal dangers because breaking a contract, even unintentionally, may lead to legal action.

Particularly if a contract contains sensitive information, such as trade secrets, it is imperative to know exactly who has access to it. The likelihood that sensitive information will leak from your contracts increases, potentially harming your company's brand or financial results.

It's crucial to keep a close eye on who has access to personnel records like stock option grants or employment contracts. Employee morale or faith in the company may suffer if private information about an employee is made public.

Finally, a breach of contract can ruin corporate relationships and increase project expenses by adding on fees for attorneys and damages. Poor communication with contractors on benchmarks and goals frequently results in breaches, which may have long-term consequences.

Two Most Common Contracting Challenges and Corresponding CLM Solutions

Similar to MHA’s case mentioned above, your company may face penalties, financial losses, and sometimes even a potential lawsuit in the event of a contractual breach stemming from poor contract management.

In the next section, we will explore the various issues that are mitigated by having software in place. 

Contracting Challenge #1: Your templates are always disappearing or changing, and you lose track of modified terms in active contracts. 

Inconsistency and danger will flourish when an organization disperses its templates over several sites. Standard templates can soon diverge, slowing down business operations, as teams look for the most recent iteration of a template or attempt to best reinvent it. As everyone who uses the templates creates their own processes and avoids the source of truth, further straying from the original document, versioning becomes a headache. Due to the vast differences in forms, phrases, and languages, creating contracts manually takes a long time, involves unnecessary risk, and slows down the entire contracting process. 

In addition, when the monitoring of a contract is done on multiple channels – perhaps one intended solely for cloud storage, another for written collaboration, and another one for inter-party communication – there arises an issue with proper storage and retrieval of the correct contract version, uniformity of terms, language and clauses, and tracking of important dates and milestones. 

There is also a real threat to the privacy of parties and the security of privileged communication done in chatrooms that are not encrypted. Beyond the problem of centralizing conversations is the possibility of third-party interference. 

The CLM Solution: Provide a single platform that has a template and clause library, centralized storage, and secure collaboration for all parties in a contract. 

An efficient CLM software can automatically create contracts with terms and conditions that have already been accepted. The process of creating contracts is sped up, made simpler, and more uniform by using standard templates. Your team can operate more productively and give your consumers consistent branding if templates are kept in one central storage. 

A clause library keeps copies for tracking updates against certain contract instances, and more comprehensive systems may even enable your team to automatically create contracts using legal's pre-approved terms and conditions. With a contract management solution made to guarantee accuracy, you can rapidly get your team on the same page.

You can also securely converse with all parties in encrypted chatrooms, and those who were granted access can comment and redline contracts in real-time, shortening contract cycle times and syncing changes across all agreements, regardless of source. If there is a question about a contract, it is simple to identify the "what, when, and by whom" in clauses.

Contracting Challenge #2: You’re unable to track all of your contractual milestones and commitments.

Central to every business is its commitments to stakeholders, such as service-level agreements with customers and sales contracts with suppliers. However, McKinsey & Company reports that according to industry benchmarks, most businesses squander 3–4% of their total external spending on unnecessary transaction expenses, inefficiency, and non-compliance. Bridging these procedural lapses has the potential to add $70 million in yearly revenue to a company with a $2 billion annual budget.

Commitments, compliance requirements, potential discounts, and other targets can easily be missed if contracts aren't meticulously managed throughout the entire organization during their entire existence. Your brand is severely impacted by this, which may give your clients the impression that you're disorganized and jeopardize those crucial connections.

Contracts frequently have enforcement provisions for penalties if one of the parties breaches certain obligations. You risk losing opportunities if you fail to keep track of contract responsibilities. It can even result in significant financial losses for your company.

CLM Solution: Maintain a system that can track contract milestones, important deadlines, and renewal dates with an integrated alert system. 

A strong basis for future contracts is created by managing contract compliance effectively, which also cuts down on late fees, litigation expenses, and bottlenecks. This phase calls for ongoing reviews of existing contracts, which are frequently neglected in the absence of a formal framework like the one a contract management software offers. By adhering to the promises outlined in your agreements, your business may avoid any conflict that could otherwise occur.

A CLM software that automatically tracks clauses and obligations is pivotal in managing your company’s to-do list for each agreement, no matter how many they may be. Even better when it includes an integrated alert system because then you will never have to word about missing out on compliance with regulatory requirements, contractual commitments, relevant deadlines, and future renewals. 

The beauty of having a one-stop shop for all of your contracts and obligations is that a single keyword search can yield all related templates, clauses, and documents you have stored in the cloud, accessible at any time, wherever you may be. With this capability, it is also a lot easier to identify if you have any conflicting provisions, amend them accordingly and create templates out of these revised agreements to avoid future inconsistencies.                                                    

Protect Your Business With Lexagle. 

With the use of contract management software like Lexagle, you can take care of your company connections and faithfully carry out your contractual commitments to raise the possibility that your present corporate contracts will be renewed year after year. Your team will now have more time to dedicate to activating and generating more contracts since your workflow is automated and streamlined – a unique value that Lexagle can provide for your company. 

Here are some of the key features that we offer.

Document Management, EasyShare, and Vault

Contract breaches and other potentially costly results can be avoided with the use of centralized, one-stop CLM software. Despite your company's increasing number of current contracts, having a system in place that notifies stakeholders of any outstanding work and approaching deadlines guarantees that nothing is overlooked.

The Document Management, EasyShare, and Vault features from Lexagle are helpful in this situation. Now, you may use a single term to search for a contract obligation, and our technology will look for matches across all of the papers we have recorded. Sharing agreements is also as simple as clicking a button.

Template and Clause Library 

With our Template Repository and Clause Library, Lexagle streamlines and expedites this otherwise tedious procedure of contract generation. Using our contract management software, creating a contract is as simple as selecting the clauses you want to include from a large list of pre-made options. With our Template Builder, you may even create your own templates for later use. To ensure uniformity and consistency, run contracts through our Lexagle A Contract Review.

Encrypted Chatrooms 

This back-and-forth communication must take place in a secure environment where sensitive data is shielded from malicious intrusions. For this reason, Lexagle created Encrypted Chatrooms, which let users collaborate and exchange information privately and securely without worrying about potential data breaches.

Automated Redlining

Lexagle's contract management software puts efficiency above bureaucracy by including a built-in Workflow Designer to create customized approval workflows for various contracts and a Task and Workflow Management Tool powered by our in-house AI that automates redlining to detect and track changes in every version of every document.

Clause and Obligations Tracker

With our Clause and Obligations Tracker, you can avoid disasters like the MHA incident. You’ll never lose sight of changes in contract provisions and valuations because you have it stored in one place, complete with access to all versions of the documents and record of every amendment made to the contract, and information on who made it and when it was made. Best of all, you will be alerted on relevant dates to ensure timely compliance with all your agreements. 

Contract Analytics and Management View™

Re-negotiations are possible, as are revisiting and changing the terms and circumstances. It is much easier to update and track changes in the initial contract and prepare for an amended contract that includes new terms if your workflow is automated and centralized in a single contract management software.

The best course of action is to go a step further and select contract management software, such as Lexagle's Contract Analytics and Management View feature, which offers useful data for every contract. With these valuable insights, you can manage value and risk appropriately.

Begin your journey towards corporate efficiency and expansion by booking a demo with us today!

Avoid Contract Irregularities With A Reliable Contract Management Software
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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