Contracts Legal Checklist

Strong business relationships are built on trust over time. However, even those relationships are almost always defined by a written contract. Contracts formalize who is buying what from whom, at what price, at whose risk, and on what timetable. It defines the responsibilities of the parties so each knows what its commitments, risks, and benefits are and, when things go wrong, provide clarity on who bears what responsibility. Often much of the value of a company is bound up in the contractual commitments the company has. Yet so often companies handle this critical process so haphazardly. A recent study showed that 71% of companies cannot answer the basic questions: Where are my contracts? Who has access to them? What is our company committed to? What are their milestones? How can I share details with colleagues? The agreements for performance with suppliers and customers are the lifeblood of a company.

Houston Business Attorneys

#6 - Inappropriate/incomplete contracts with outside vendors

--- ENTREPRENEUR.COM - FEBRUARY 2017
9 Common Mistakes Business Owners Make

Unknown milestone dates can lead to an accidental automatic renewal on a service no longer needed or the missed opportunity for renegotiation of key terms, both of which cost money. Contracts scattered on desks, across multiple computers, and with several employees makes it difficult to understand a company’s contract portfolio, which creates unnecessary risk and cost. PricewaterhouseCoopers (PWC) produced a study indicating that “industry estimates suggest that most companies with current practices could increase top-line income by 0.25-2.0 percent simply through better enforcement of contract terms.” (Contract Management: control value and minimize risks, an independent paper by PricewaterhouseCoopers LLP sponsored by Memba Limited 2003.

PricewaterhouseCoopers

Contracts Management is the system a company employs to understand its contracts both at the initiation of the contract and later preventing loss of visibility to their terms. A good contracts management system is critical to realizing the value of the agreements companies enter into to run their business.

List

A good contracts management system usually incorporates technology and addresses some, if not all, of the following:

  • Coordination of Internal Resources in the Contracting Process

    Identify the processes and people already involved and those who should be involved in the contracting process. This includes contract policies, approvals, negotiating authority, signature authority, filing systems and records retention. Work with this group to determine the best approach for streamlining the process and maintaining buy-in and consistency.

  • Contract Initiation

    Develop a process for involving the right people, gathering the right information and getting the correct approvals to enter into an agreement. Standardize so that the cycle for review (legal, for instance) need not be involved in every contract.

  • Drafting and Negotiating

    Build a set of agreements that are frequently used (customer contracts, procurement agreements, NDAs, etc.) where possible. Where non-standard, identify the key deal points and a good starting format from which to work. This usually involves a general statement of the work to be performed. Identify the correct team for input and review.

  • Approval and Execution

    Identify who needs to approve a contract, including if there are any regulatory or internal policy obligations. Some agreements may require the approval of the board of directors, credit department, risk management, or due diligence review of third-party agents.

  • Contract Retention

    Implement an electronic repository for agreements to upload all executed and in-process agreements, including ancillary documents or information necessary for the execution of the agreement. This repository can be on a shared drive or in the cloud and should include access controls. The process of uploading should also include tracking of key details of contracts necessary to perform the contract and generate meaningful reports, as well as a simple review to ensure that the agreement is complete with signatures and all attachments necessary,

  • Contract Administration and Performance

    Identify a contract owner who is responsible for overseeing or maintaining visibility to the performance of the contract.  This often includes a clerical function of pulling relevant key milestone data for periodic reports that can be reviewed by management.

  • Contract Renewal or Termination

    Part of contract administration is to identify agreements up for renewal or termination in a timely fashion so that informed decisions can be made.

  • Audit and Analysis

    Continually evaluate the business value, financial performance, and productivity of each contract. The audit may also include measuring a counterparty’s performance using KPIs, establishing benchmarks for quality and responsiveness, and identifying potential cost savings that can be achieved in the future agreement.

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