Compliance & Ethics
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The Diligent team
GRC trends and insights

5 contract management compliance strategies

January 4, 2018
0 min read
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Contracts are the legal ligaments of any transaction in modern business. This holds true whether you're the employer or the employee, whether you're the large organization expecting goods and services from a client or the vendor who promised to perform. Establishing a contract is the center around which all of these relationships revolve.

Contracts establish trust between individuals and institutions, creating an equal playing field. Contract compliance processes exist to make sure both parties get what they expect out of a deal.

A recent government-related mishap sheds light on the grave consequences that may result from improper contract management. In August 2017, the New York City Comptroller's office revealed that the NYC Department of Education had been 'playing by its own rules' with service contracts. Contracts had been awarded without bids, renewals made without review, and documentation filed after the work had started or even after it was finished.

Public institutions like a city's education department are permanent and have to be reformed when violations occur. The liability of a private organization is much greater. This is probably why negotiating and maintaining contract compliance is one of the top priorities of business' legal departments.

As an organization grows, it is inevitable that it will enter into more and more binding and actionable contracts. This post lists five of the basic methods successful organizations, managers and legal departments use to ensure they are on top of everything they are owed under contract.

1) Know Your Responsibilities

Every organization has the legal responsibility to manage a vendor's compliance with any contract they enter into. The three major ways this is done are reporting, monitoring and evaluating.

  • Reporting: It is obligatory that vendors selling to your organization provide regular reports on their progress. Each contract should have a point person (a contract manager) in your organization who uses these reports to evaluate performance.
  • Monitoring: Active contract management involves site visits to inspect progress and make sure the vendor is carrying out the project under the terms stipulated by the contract.
  • Evaluating: Organizations must have a consistent procedure to evaluate the performance of each vendor, which means establishing an objective standard of expectations. You need both ongoing evaluation and, after the completion of the contract, a system that can help you determine whether they should be employed again in the future.

2) Standardize and Automate

Even the smallest firm will have a boilerplate contract for procurement purposes. Scaling up, we find larger organizations have templates ready for all of the different categorical and geographical variations they encounter in these deals. These templates must be continuously updated with every change in regulations or corporate practice. Automating this process can save you time that could be better spent on improving your core competencies rather than attending to the nitpicky details of compliance.

Effective contract management revolves around a standard workflow for contract creation and approval, with the proper hierarchies in place so that the organization can operate effectively. As almost every contract can be subject to negotiation, it's also important to identify which clauses are mandatory or not, and to keep records of all customizations. This brings us to a central part of contract compliance.

3) Centralize Contract Data Collection

Different operations in your organization will enter into different kinds of contracts. To help ensure you're getting what you paid for, you should have a central repository of information suited to your organization's requirements. This will contain information on all ongoing and past contracts, most importantly performance reports and dates for inspection and renewal. This technology allows contract managers to monitor and evaluate your vendors systematically and effectively.

4) Proactively Deal With Problems Through Auditing

Contract auditing should be a regular practice of your organization's legal department. For example, vendor overpayment (through fraud or error) in even small amounts over time can slow or cripple a business line. By establishing a consistent auditing practice, you can eliminate this risk. Over time, these audits will help your organization as a whole learn the best practices to avoid unnecessary spending, reduce the risk of costly disputes and keep your business on the right side of regulatory agencies.

5) Control Your Budget

While managing all of these contracts may sound like a headache for both the employees assigned to them and your legal department, doing it right carries its own rewards. Effective contract management can reduce the costs to your organizations, as it relentlessly monitors project expenses. If a vendor goes over budget, you will know immediately and be able to implement a solution.

At the height of the recession, Aberdeen Research found that firms adopting contract management solutions saved as much as 83 percent on their outgoing expenses over their competitors that remained in the dark age of manual contract writing and entry. Even today, the economic ground remains subject to rapid shifts. Cutting the fat from your bills through contract management helps immediately as well as in the long term.


If your organization has consistent methods of writing and approving contracts, establishes practices to evaluate and audit them once they are in place, and keeps track of all of this in an effective manner, you stand to save a tremendous amount of time, money and organizational resources.


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