What Is Contract Compliance?
The core of contract compliance is making sure you act to fulfill and support your obligations under a contract. These goals may mix with those set by governments or accreditation boards, as well as objectives (like sustainability governance) that your business sets for itself. As part of the legal team, you may be seeing multiple contracts at different stages flying in and out of your office daily. A compliance system helps keep you and everyone else on track.
So what exactly is contract compliance?
Contract compliance measures how well your business follows internal and external standards. Each contract you enter will have a set of goals and often checkpoints on the way there. Complying with the contract means meeting all those goals, but it can expand more broadly to improve your business and contract writing processes.
Creating contract compliance
There are a couple steps in learning what contract compliance is. First, it means creating a strong contract with a set of measures for compliance. Second, it requires developing a workflow that allows you to measure compliance with the contract throughout. This workflow responds dynamically to small and large audits. Finally, it is a system and a strategy that keeps your operations on target yet still flexible enough to improve or change when needed. Contract compliance keeps your operations in line with the external and internal standards you have set.
Why is contract compliance important?
Contract compliance increases efficiency and reduces different kinds of risk. By complying, you increase your chances for the renewals and expansions of contracts. For example, one type of risk is currency fluctuation in unstable times. If your contract measures in monetary units and crosses international lines, the amount of work done to fulfill that contract can vary. Also, commodity prices can shift 8% daily, and you’ll need periodic checks to assure compliance. A strong contract prepares for events like these. A good contract compliance system will have automatic checks in place for these events. It notifies the relevant people and triggers useful actions in response.
“One of the things I absolutely love about Ironclad is the reporting function.” -Heather Quinn, Contracts Administrator, Cofense
How do you ensure contract compliance?
When you have more than a few contracts, ensuring compliance with all of them becomes difficult. It is especially difficult when the compliance standards themselves become changing targets. Contract compliance is about taking steps with every contact to be certain you meet its obligations. Each of these steps is a necessary part of contract compliance.
- Keep lots of contract examples: Contract examples will speed the creation of new contracts. They can also show you how you structured earlier contract compliance measures.
- Goals: The end of the contract is not the only goal. Set goals throughout the contract’s lifecycle to stay on track and fix problems early.
- Metrics: Once you have a goal, determine how you are going to measure compliance. Often, this is with a specific number (like units shipped), but it can be in other forms (like calling your client to see if they are receiving the shipments).
- Clear roles: It takes several people and departments to fill any single contract. For each task, make certain everyone knows exactly what their part is.
- Standardized process: With clear goals and roles, you need to plan and perform work that meets those goals. The exception is if an audit or check has found inefficiencies, in which case you must change and improve the process.
- Audit: Audit contract compliance frequently. Audits can be reactive or proactive, but they should happen regularly. After an audit, you apply what you learned and adjust.
- Adjust: Change your processes when an audit or other information tells you they are not working efficiently. Constant audit-adjustment cycles throughout the contract’s lifecycle will help you meet your obligations. This process makes the invisible seen, giving you greater insight into your contract fulfillment practices.
- Technology: Keep up with the latest technology. Once, a spreadsheet was hot technology to keep track of contracts. Then, contract management software leaped beyond that to record and control for many more features. Now, contract lifecycle management gives you the power to trace those changing features.
Best practices for contract compliance
You don’t want mere compliance. You need to know what goals you are meeting and where complying with the contract is headed. To do this, adopt what are considered some of the best contract compliance practices.
- Dynamic contract repository: A dynamic contract repository, such as that offered by Ironclad, does more than let you find and read contracts. It makes the contracts into usable data. You can create a report on all of your deadlines to plan staffing over the next month. You can also suggest clauses with high compliance rates to your customers when drafting new contracts.
- List all performance obligations: Looking over the contract, list everything that needs completing to meet the terms (and to meet your selected compliance standards). Some large tasks will need to be broken down into smaller ones. Then, develop a metric for each of these items.
- Metrics: The tough part of metrics is making sure that they measure exactly what you want them to measure. Metrics based on counts and numbers are easy to collect and read, but you must select them to measure your goal. Counting a total sales number is easy, but it doesn’t account for exposure to different markets.
- Audits: Frequent, regular audits are the key to contract compliance. Daily checks on the numbers of products produced can keep you on target and catch common contract errors like typos. Weekly checks with subcontractors make sure you meet their needs. It is good to have automatic audits built into your system, and you may want a thorough audit halfway through.
- Adjust: Be ready to change if you get unexpected information from your metrics or audits. These checks exist to improve the process and the company. Once you optimize a process, record it with the contract and move it into your template repository.
Contract lifecycle management
Today’s contract compliance definition starts with contract lifecycle management. Managing over time means incorporating metrics, audits, and adjustments into your management system. Treating all contracts as dynamic means you are constantly getting the feedback you need through multiple parts of the system. Once you look at contracts this way, you can form standardized workflows that meet multiple contracts and simplify contract creation. A lifecycle-focused system ensures you are able to efficiently complete your contractual obligations.
Streamlining the process
Ironclad’s program includes several features that streamline the process of contract creation and compliance measurement. Each completed contract will make future contracts easier by allowing you to use the parts that work best again and again.
The Workflow Designer turns contract creation into a series of drag and drop options, chosen from contracts you have previously successfully used. All contracts flow through this centralized location, moving toward standardization and ease of use and measurement. In this system, the contract will move to the next person who needs to add data or sign off on it. You will know where it is at all times. The Workflow Designer also builds compliance with government rules or internal measurement systems because you are using contract parts that have already cleared those processes.
The Editor allows the community to become involved. People can add their questions or suggestions as notes onto the main document. They (and you) can tag others, and the Editor will reach out to them from there. It uses the .DOCX format. Using this common format means that everyone can open and use it on their computers, even without the installation of Ironclad’s program. Every contract can be individually tailored even though it comes from a standard set of sections.
The Repository is a dynamic storage, retrieval, and use system. It allows you not only to find contracts individually but also through group-search criteria. This kind of searching makes the Repository a powerful tool for contract compliance management. If a sub-contractor runs behind, you can pull out all contracts that use the same sub-contractor and notify all the right people. You could then move to the Workflow Designer and re-route the processes so you are better prepared to meet the deadlines.
So to revisit: What is contract compliance? It is more than having a contract that aligns with the standards you need to achieve in your own business. It also needs to remain in compliance at every stage, even with the world changing around you. Management over the lifecycle of the contract lets you adjust if shipping slows down from a country where you buy components. You can adjust staffing later when that backlog of supplies finally arrives all at the same time.
Laws and regulations change regularly. You may be in the middle of a contract when the law changes, which means you’ll then have to increase security mechanisms or decrease greenhouse gas emissions. With lifecycle management, you keep your contracts completely updated and are able to adjust your people and processes to meet these new requirements.
Contract compliance with Ironclad
Compliance measurement needs to be a process that is both flexible and standardized. Contract lifecycle management with Ironclad helps you meet those seemingly contrasting goals. Again, what is contract compliance? Remember that it starts with a strong contract and sets goals to meet its internal and external requirements. Fit metrics to meet those goals and set audits to check compliance at different parts of the process.
Ironclad’s software is tailored to improve both the contract compliance process and its ease of use. Through features like the Dynamic Repository and the Workflow Designer, you can collect data from your compliance activities and use it to improve future contracts and compliance. Read about digital contracting and how it can change your work. Request a trial to find out exactly how Ironclad can improve your contract compliance activities.