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• In procurement circles, a company is likely to have multiple contracts with suppliers. Most of these contracts are tens or hundreds of pages long.
• Reviewing them manually is not only time-consuming but also challenging.
• Manual reviews can also be expensive when a large team is required to continually assess new contracts.
Contract risks can be put into 4 major categories. Financial risk is the likelihood of the organization losing money because either party failed to fulfill a clause. Legal risk is the chance of an organization getting sued or entangled in legal battles due to a contractual breach. The third category is a security risk, whereby sensitive contractual information may be accessed by unauthorized parties. Security risk bears both financial and legal implications. The final category is a brand risk which refers to the reputational damage that happens due to any of the three other risks.
Mitigating contract risk can be easier with the right technological tools coupled with management acumen. It takes deep procurement knowledge to foresee potential contractual risks and apply the correct mitigating actions.
Here are contract risk management tools you can use to protect your organization.
Safe Storage in a Contract Repository
The first step in proper contract management should always be to figure out safe storage for all contracts that your organization has with suppliers. The dedicated storage should be easy to access for the persons charged with the monitoring. The storage solution should be scalable as the organization grows. A company should have proper documentation of all contracts it gets into, no matter how much time has elapsed.
Safely stored contracts are an insurance policy against any accusations of breach of contract. The organization can also refer to contracts when a supplier fails to perform as per the contract. An example of a contract repository is the ProcurePort Cloud Hosted Contract Management Solution.
Automated Data Mining
Companies dealing with bulky contracts need a way to go through them and quickly find the information they are searching for. For instance, it’s difficult to go through a contract with thousands of clauses in just a matter of days or weeks. However, using contract life-cycle management software, all contract clauses can be compared to pre-approved clauses. AI technology can help to identify potentially risky clauses for further review.
CLM software can also have preconfigured risk analysis rules that can give a risk score for every contract. The risk can be used by authorities within the organization to determine whether to approve and append their signatures to contracts or send them back for review. In fact, some of the software is so sophisticated that the risk information is presented visually on a dashboard for easier understanding. Decision-makers can input hypothetical figures to try and brainstorm what would need to be done in different scenarios. This aids in contingency planning.
Being able to search through contracts enables you to quickly find important contract metadata. Such data includes contract values, banking details, emails, phone numbers, and counterparties. It also makes it easy to spot data-entry errors and correct them.
Setting Up Automated Notifications and Reminders
Dealing with multiple contracts means that you’ll have numerous deadlines and obligations to fulfill. Failure to honor these obligations could easily have legal and financial implications on the business. It’s therefore important to set up automated notifications and reminders within the CLM software.
When something needs to be done, a notification should be routed to the relevant person to handle it. In fact, the contract workflow should be automated, and an audit trail established so that people don’t slack on their responsibilities.
Notifications of upcoming renewals are also important so that the organization does not end up paying for services they no longer need. In fact, subscription bills for unused services can easily run into thousands of dollars if they go unchecked. Setting up reminders allows the responsible parties to check whether the organization still needs it.
Access and Security Controls
Security risk is a major cause for concern in any contract management situation. You must ensure that you understand the legal obligations you have regarding the confidentiality of contracts you get into either as a vendor or from your suppliers.
You must set up access controls in your contract management software. The first basic form of security is multi-factor authentication so that unauthorized external parties don’t get access to the system. The other form of security is limiting the information users can access based on just what they need to properly carry out their work. The administrator should have the power to grant and limit access based on the roles people are assigned.
Third, the organization must be careful to only use cloud services with a reliable security track record. Your organization should go for globally recognized tier 1 cloud storage providers who are always improving their security and have zero past incidences of breach and downtime.
Picking the Right Contract Management Software
The right contract risk management tools should make it easier to manage contract risk and fulfill contractual obligations. It should offer workflow automation solutions whereby people such as legal counsels will always get notified whenever a task in their purview falls due. This will reduce the likelihood of missed deadlines. A good CLM should also offer a solution for assessing contract risk dynamically and flagging clauses that need review.
If your company needs a contract risk management solution, ProcurePort can provide the right solution for you. We are a leading provider of e-procurement software. Our tools are highly customizable to suit your workflow. They provide 24/7 safe access to your contracts, notifications, and business intelligence to aid in your decision-making.