Part-1 of the blog series on Contract Risk Management talked about the risks inherently associated with the most common contract management platforms used today. Types of Contract Management Risks Part -2 addressed the types of contract risks that most organizations face and the benefits that a Contract Lifecycle Management software would bring. Today’s blog post will talk about some contractual risk factors and explore ways to deal with them.
Common Contractual Risks and Ways to Manage Them
1. Incongruous language
- Initiate contracts on in-house and preapproved templates as the contracting party’s contract template may include unfavorable T & Cs.
- If using in-house templates isn’t feasible, ensure a thorough review of the third party’s contract template.
- Store the legal team approved contract language in the CLM solution’s clause and template library. This ensures the use of appropriate templates and clauses for different contract types across geographies and helps cross-function alignment to your contract risk management goals.
2. Delayed negotiations
- Send contracts to multiple contract reviewers at the same time for parallel reviews as part of your contract risk management strategy.
- Set strict timelines for reviews and approvals to prevent oversight.
- Use CLM capabilities such as redlining, version comparison, etc. to accelerate negotiations.
3. Currency fluctuations
- Draft Contract T&Cs carefully, keeping prices of raw materials, currency fluctuations, etc. in mind.
- Predict variations and effects of currency fluctuations (using a CLM) to come up with the best contract terms.
- Closely monitor contracts with different currency formats, terms, conditions, escalation/ de-escalation clauses.
4. Improper obligation management
- Manage obligations properly to extract the maximum benefits and minimize risks from a contract—avail discounts on timely or early payments, identify cross-sell and up-sell opportunities, enforce penalty clauses.
- Use CLM to capture every clause with an obligation statement and do away with the painstaking manual process of identifying obligations page-after-page in a contract.
- Automatically track contract utilization and compliance to ensure contract value generation and efficient contract risk management.
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