Top Contracts Management Mistakes
As any business owner knows, organizations live and die by the contracts they sign, whether they be to purchase SaaS products or to define labor agreements. With all the contracts that pass through organizations in any given month, some mistakes are inevitable. However, many organizations are making mistakes that not only cost significant money, but are also entirely avoidable with the right contracts management people and processes in place. Here the five most common contracts management mistakes we see on a regular basis:
1. Not tracking renewal dates
This might seem like a rookie mistake, but Fortune 500 companies also run into this issue all the time. Even if a contract management system is in place, proper data entry and follow ups are required to make sure that contract renewals don’t slip through the cracks. Missing a renewal date can not only result in lapse of service (or revenue), but also often costs quite a bit in employee time when everyone drops what they were working on to rush a renewal through. Ideally, procurement and contract management departments should have a monthly review of active contracts and forecast when contracts are due to expire to ensure no “gotcha” dates are coming up that haven’t already been tracked.
2. Not tracking SLAs
Even when companies do a good job of tracking renewal dates, they often aren’t paying close attention to the SLAs agreed upon in service contracts. This has a two-fold effect: first, it means that when SLAs are missed, compensation isn’t being recovered, and second, it means that no one is tracking SLA compliance over time to determine if vendors are doing a good job. SLA compliance should be a key metric that procurement or contract management departments look at on a regular basis, so make sure that monitoring is in place from impacted departments to log and escalate this data as needed.
3. Not having strong oversight of contract coverage
Many companies (especially those still focusing on rapid growth) leave contract terms and details entirely up to managers without performing a strong review for proper coverage. This can often lead to contracts that contain inaccurate or broad descriptions for services and deliverables, as well as lack of clearly defined due dates and quality requirements. Without proper coverage, it not only becomes difficult to hold vendors accountable for work, but also creates situations where vendors are unsure of exactly what items they are expected to deliver. Good pre-signature contract review processes should include a review of contract terms for clarity and coverage.
4. Not optimizing service usage
The rise of SaaS and related service contracts has led to an increasing abundance of pricing structures related to licenses and service usage as opposed to older “unlimited” default contracts. While this can create opportunities for companies to purchase services they might not otherwise be able to afford, it also has the add-on effect of often creating situations where companies are either paying for more service than they are using, or where they could save money by upgrading to the next service tier. A good contracts management process should routinely review actual usage of service against contractual pricing structure to determine if changes can be made to save money.
5. Not standardizing language and policies
The most mature procurement and contracts management teams have standardized libraries for language and policies to include in contracts, and they make this information easy to access for managers. However, this is often not the case and a lack of this content leads to contracts that are out of compliance with legal requirements and recommendations, misaligned between different departments, and difficult to track and update when policy changes are put into effect. Procurement and contracts management teams looking to level up their processes should prioritize standardizing contract language and educating managers across the organization on where and when to use it.
As you look across your organization for areas to retain and recoup revenue while reducing legal risk, make sure to evaluate your contracts processes. Procurement and contracts management departments are often the front line between your organization and your vendors and customers. Avoiding the above mistakes can go a long way toward ensuring that your company is making the most of opportunities.