How Contract Management Software Minimizes Deviations in Contract Language.
Enterprises handling a large number of contracts face the challenge that their pre-approved contractual language is often modified. The larger is the size of an organization, the longer is its lag between the execution of the modified language and somebody finding about the existence of that deviation from approved language, if at all.
Deviations from pre-approved conditions, including terms of warranties and indemnities, can create costly problems when contracts are executed without prior knowledge of these modifications. In this article, we will review what are common sources of deviation from approved contract language and how to minimize those instances through the use of contract management software.
Causes of Deviations from Standard Contractual Language
While the contract formation process varies widely, from contracts formed quickly in face-to-face meetings to contracts formed with teams of attorneys, any business needs to be clear on what standards to use. It is understandable that in order to generate businesses, one must be flexible to accommodate the specifics needs of clients.
However, when lacking a centralized contract management system or using a paper-based contract management system, it is difficult, if not impossible, to keep track of all the instances where unauthorized language or deviations from approved conditions have occurred.
An example of this is the use of Internet contracts involving the sale of goods or software. If no specific warranties and indemnities are described on the contract, it is implied that the warranties and indemnities under state law will take place. If a sales representative were to include a warranty clause requested by the without informing his direct supervisor or headquarters, there is no way that anybody could correctly account for an accurate opportunity cost of the warranty clause.
Another example is how the interpretation of best efforts clauses varies per state. Having guidelines that establish the context of the use of “best efforts” and “commercially reasonable efforts” are a best practice because they are more likely to limit the range of possible interpretation. When a manager arbitrarily modifies a best efforts clause, she can jeopardize an enterprise’s position in case of litigation.
These two examples can amplify quickly. Imagine that a group of salespeople close deals all over different states, how can you keep track of all the deviations from standard contracts that take place?
Preventing Deviations through Contract Management Software
By using contract management software, any enterprise is able to clearly keep track of instances in which contract language has deviated from approved standards and of instances in which approved conditions (e.g. sale discounts, spending limits, budgets, etc.) go outside of acceptable thresholds.
This type of software becomes a central repository, where authorized personnel can access contract and agreement data from any location is a fast and reliable way. It is important to select a contract management software that has advanced search capabilities that allow managers to retrieve and compare contracts through a multiple range of queries. Having such a tool empowers authorized staff to expedite contract creation and negotiation by having access both to approved alternative language and to explanations of why that alternative language was used.
By operating a centralized enterprise contract management system all members of an organization can collaborate in real time and keep tabs of the history of a contract: check-ins, check-outs, amendments, authorization requests, approvals and request, and much more. A contract management software takes the guesswork out of contract writing by keeping language consistent, allowing complete disclosure of work performed, enforcing due diligence, and highlighting all deviations from standard language.
Takeaway
A contract management system allows a company to track deviations from standard contract language in order to minimize the risk of entering contractual obligations without a full understanding of the financial costs and potential liabilities.
Image Credit: Maryland GovPics
