Contract Management and Compliance | Pushing the elephant in the room

In my previous article, we discussed about the problem of managing large volume of contracts at an enterprise level, through which we derived that there aren’t many good contract management tools with elaborate functionalities affording visibility. So, the Elephant in the room is not visible in the first place.

Although, there are some tools that are available in the market which can do a reasonable job of governance for a few key contracts; my concern is about managing the base of the pyramid i.e. the contracts that are never given enough attention in their creation as well as management.

Now, let us take a step back and hypothesize that there is no elephant in the room; it is outside the room and we need to push it inside.

From a contract creation perspective any enterprise will typically have:

I. Standard terms/templates that are pre-approved

II. Standard terms/templates requiring approval from Sales, Finance, Business, Legal

III. Non-standard terms/templates requiring drafting, redlining, review and negotiation from Legal apart from requisite approvals as per DOA (Delegation of Authority) matrix.

It is the last type of Agreements (non-standard terms/templates) that constitutes the bulk of any enterprises’ contract volume. Their creation is the most problematic due to lack of agreement on base terms/template requiring cross-functional and inter-company collaboration. There is invariably a problem with versions exchanged during the process. Further, the delay caused in obtaining numerous necessary approvals for non-conformities with standards is frustrating for the parties resulting in either a broken or deviated deal. Think of the challenges of Optimization and Compliance at an enterprise level due to unassigned risk values to these innumerable contractual expressions as per legal discretion and intellectual capacity. Again, a big number of such contracts are still executed on paper which have a long execution cycle and invariably scanned for electronic data uploads for record management purposes.

To conclude, a good contract creation tool should have essentially all standard terms/templates that are pre-approved, all standard terms/templates requiring approval from Sales, Finance, Business, Legal with necessary controls and the following functionalities to deal with the last category:

· Collaboration capabilities: cross-functional and inter-company

· Editing and version control capabilities

· Capabilities to assign risk tags at clause level

· Capabilities to analyze risk scores at contract levels

· Work-flow to manage approvals: non-standard terms/templates and routine approval from Sales, Finance, Business and Legal

· Artificial intelligence and machine learning to enable auto-approvals

· E-signature

All these capabilities are a must to reduce contract execution cycle time and ensure greater compliance with contracting standards. It also provides a solid platform for an effective Governance, Risk and Compliance function for the contracts, which were otherwise being created outside of a system.