Minimizing Contract Management Risks: Stop Stressing and Start Executing
Contract management spans entire businesses. From in-house legal services to finance, procurement, operations, sales, HR, and more, every department in your organization touches the contract process. Because of the length of the process, with all its moving parts and all the various people involved, contract management involves a lot of risk.
And if there’s one thing lawyers focus on, it’s contract risk and compliance. Sometimes, however, that narrow focus can hamper deals and can increase your risks instead of minimizing them.
Some businesses are afraid to automate or manage their contracts digitally because they believe it increases their contract management risks. However, doing everything manually actually increases the risk.
But before we talk about mitigating risk, we should explain what contract risk is. Some common contract risk examples are:
- Data breaches. Confidential business information can fall into the wrong hands if you don’t keep your contracts secure. This is a huge compliance issue, and every legal team needs to have a plan to deal with it.
- Not including up-to-date language. Lawyers often pull provisions from old agreements for use in new agreements, and sometimes, even if you’re careful, things get missed. Without a repository of up-to-date contract language to draw from, you may end up putting in outdated language, or worse — language that doesn’t meet the business need.
- Forgetting important provisions. When you’re balancing a lot of different contracts with many nuanced clauses and provisions, you may be tempted to quickly fill in a template and move on to the next project. But not all deals need the exact same provisions, and you may forget important language.
- Bottlenecks taking up time. Bottlenecks are caused by inefficient processes, like when things require too much manual work to sort out, or you need too many people’s approval for a document sign-off. It causes tension. You’ve sent a contract over for approval, and you wait, and you wait, and you wait. They’re just not getting back to you in time. If your organization requires multiple layers of review, and their organization requires multiple layers of review, this process of back-and-forth revising can happen over and over and over again.
- Working with the wrong version. You get a ton of emails. So many different versions of a document are floating around. Sometimes you make changes to an old document without realizing it, and sometimes the other side does that, prolonging the process and complicating negotiations.
- Failure to keep track of contract deadlines. Some contracts come with time limits to your company’s contractual obligations. Don’t miss a deadline because someone forgot to keep track of them. Conversely, not being aware of the other party’s missed deadline may mean you don’t assert a contractual right.
- Failure to keep track of contract renewals and termination dates. Unintentionally renewing a contract that’s no longer relevant can be costly, and so can allowing a gap in services by missing a termination date.
These can all have a huge impact on your business. So what is contract risk management? And how does digital contracting address that? Here are four ways that digital contracting minimizes the risks of poor contract management and makes the process more efficient.
1. Keep your information secure.
As cloud-based services become more common, we’ve all become more comfortable using them. But with recent high-profile hacking incidents and corporate espionage in the news, data security is the most important consideration for compliance and contract management risk. Many begin the contract risk management process by asking about security and risk management.
Ironclad has enterprise-grade contract security and compliance to minimize contract management security risks. To keep your sensitive data secure, Ironclad uses the industry’s best practices, including:
- Industry-standard (or higher) encryption — All data in transit is encrypted using TLS 1.2 or higher (the most widely used version) and encrypted at rest through AES-256.
- Regular penetration testing — They run penetration tests every year and vulnerability tests every quarter ensure that are systems are staying strong.
- Security certification — Ironclad has been SOC 2, Type II certified since 2017. This is one of the most comprehensive certifications a firm can receive.
- Data retention. Ironclad regularly deletes customer data, and only stores what is absolutely needed for basic business functions.
- Restrict privileges. Ironclad highly restricts access privileges, in keeping with best practices, so that there’s very little risk to you. In turn, Ironclad allows you to restrict access within your organization, keeping your internal data secure.
Data security is currently one of the biggest issues in the business world, it’s no longer just an IT issue. In-house counsel is becoming increasingly focused on privacy and security.
Optimize your contract risk compliance by using contract management software like Ironclad’s. Easily keep your team compliant with rapidly-evolving standards and laws, so that you can focus on guiding the company through its own compliance risks.
2. Reduce the potential for human error.
No matter how painstakingly you review documents, sometimes you miss things. Sometimes you forget to remove language leftover from an old agreement. You work with an older version of a contract without realizing it. You get an important date wrong, or you forget to respond to an email.
Maybe it’s not you. You might be exceedingly detail-oriented, you pride yourself on never making mistakes but instead, it’s a member of your staff, or maybe it’s someone working for the other party.
With so many people involved, even when dealing with small contracts, there are many places and moments for a mistake to be made. According to one survey, 92% of errors in contract management are human errors. You risk contract management just by having human beings do it.
If you see the problem with that, here are some of the ways that human error, and their resulting contract administration risks, can be limited by contract management software:
- Consistent, up-to-date contractual language: Contract management software keeps all your contracts in one place. Ironclad offers buildable templates, so that you know your office isn’t using out-of-date language.
- Trackable changes : You’ll know you’re working with the latest version, so you don’t have to wade through emails. You’ll also know if someone else is working with the wrong version, and you’ll be able to @ them to let them know.
- Easily find contracts nearing an end or an automatic renewal: Don’t get stuck with a renewal term or have a gap in service because someone forgot to calendar a date or follow up in time. You can easily set automated reminders and notices with Ironclad.
Ironclad’s Dynamic Repository helps prevent human error by keeping all your contracts in one place and making them searchable — you’ll never lose a piece of data again. The Association of Corporate Counsel has touted the importance of using a system like Ironclad’s to keep pace with changes in technology and stay ahead of the curve.
3. Ensure inclusion of appropriate provisions.
Drafting and reviewing contractual language is one of the traditional functions of in-house counsel, and this is an area where you likely shine. But even the best of us can make simple errors when juggling numerous contracts while the team continues to update and make changes. Here are some ways digital contracting and can help you keep draft and review contracts:
- Digital contracting helps keep track of your company’s current provisions, so you’ll know that you’re using your current preferred terms. Language gets updated frequently to meet federal standards, and to keep clients happy, so you always need to be on top of any changes.
- Conditionality allows the documents to be built and customized automatically. You don’t have to copy and paste the language you need, and you can always include the required provisions for a particular contract.
4. Save time and money.
The longer a deal takes to complete, the more time it has to fall apart, and the more time you spend on a deal, the more your labor costs go up. Digital contracting increases efficiency, saving time and money and minimizing your risk in contract management. The legal team at Mastercard uses Ironclad for digital contracting, and they’ve experienced a dramatic increase in efficiency as a result. Here are some ways digital contracting can save your team time:
- Use software to help with reviews. Instead of the old and slow process of meticulously reviewing documents by hand, Ironclad automatically identifies issues with important clauses and provisions.
- Draft contracts faster. When all your language and contracts are in one place, you can pull the appropriate, up-to-date language more quickly. Customize documents with conditionality. Digital contracting all but eliminates issues with version control, especially if both parties are users. Don’t spend time combing through emails to find different proposals or language.
- Keep a handle on the process. Eliminate bottlenecks, identify possible issues, and send reminders to help speed things up. Easily keep track of important dates and versions so that a contract doesn’t get lost in the process.
While it may seem counterintuitive to minimize risk by automating instead of manually managing everything, human error is the major source of mistakes in contracting. Relying on well-designed and customizable software not only saves time and money, but it also increases the quality of your work and minimizes the risks associated with the process.
Find out more about how Ironclad’s digital contracting can help you minimize your risk today.