Best practices for vendor contract review -- because devaluing the role of contacts in your business can lead to extra costs and stress, and worse (lawsuits!)
While this article addresses some of the basics of reviewing vendor contracts, it is not intended as a substitute for legal counsel specific to your needs and risks. If you have questions or want to discuss how you can implement a better vendor review process, contact Temple Law at email@example.com
Contract Management Pain Points
Most of the time, everything works out: you get exactly what you need from your vendor and neither party ever looks at the contract again. However, if you've owned or run a business for any significant time, chances are you've had to manage unfavorable vendor terms in some capacity or other.
Some common contract-related pains are exemplified by the following scenarios:
Your business credit card is charged monthly for an unbelievably long three-year term.
The once-clever contract tracking spreadsheet process is starting to break down.
An issue arose with your vendor -- and you can't locate the contract!
The vendor fails to deliver what you thought you ordered, and you have no recourse.
Your company's name or logo is unknowingly displayed on a vendor's website.
A company salesperson agreed to something that the business is simply incapable of delivering.
You spend gobs of attorney fees on contract reviews.
If you've ever encountered one or more of these unfortunate situations, you likely don't have (but desperately need to adopt) a formal contract management process. A formal contract management process is just what you need to reduce your company's legal and financial risks.
Establish a Contract Management Process: The Gold Standard
With the right contract management process in place, you can help ensure that your contracts:
meet company standards for compliance, quality, and consistency, and
are drafted, negotiated, and signed in a careful and efficient manner.
The contract management process has three important pillars:
Formalized Procurement Process - This should be applied to all terms and conditions, including online terms and click-through agreements. Typically includes:
Contract review/approval rules, timelines, and milestones
Playbooks (including fallback positions, negotiation guides, and alternative language)
Binding Authority Policies: who is authorized to sign what
Contract Management (Contract Lifecycle) Software
These three pillars are crafted to best support the following stages of the typical contract lifecycle:
Contract Intake: For example, the business owner launches the workflow and legal operations confirms the intake.
Negotiation: For example, legal counsel reviews and redlines the contract within 5 business days, and the business owner leads contract drafts exchanges with the vendor.
Approvals: Select stakeholders (finance, compliance, strategic sourcing. legal, information security) review and approve the contract.
Execution: Legal or legal operations sends the approved contract for signatures.
The Biggest Hurdle is The First Step
You can't have the ideal procurement process if you don't start with actually creating one!
Oftentimes the best way to start tackling this seemingly massive project is to implement a contract management or contract lifecycle software solution. No off-the-shelf software will perfectly meet all of your requirements, but the imperfect help and structure provided by any of the reputable contract management software solutions are almost always better than exposing your business to compounding financial and legal risks.
A good implementation process will force you to identify and address your biggest pain points and establish a plan for iterative improvement.
Consider using a Contract Management/Lifecycle software solution that offers:
workflows with approvals;
a requirement that the business owner submits basic deal details, such as counterparty information, the contract value, the deal urgency, and a description of the goods or services;
a message board for communication between teams or even the vendor;
a means to control the document, its versioning, and comments;
an e-signature process;
a centralized repository; or
key date notifications so you don't miss renewals or termination dates.
Take that first step! It will be and continue to be, a work in progress.
Ready? Set. Go!
Your business should take contracting seriously. Implement policies and procedures, consider using contract management software and train your employees regularly.
Ready to set up your ideal procurement process? Need help identifying great contract management software, putting in place or updating your procurement policies, templates, playbooks, or training? Want assistance drafting and negotiating your contract? Contact Temple Law at firstname.lastname@example.org to find out how we can help.
This publication should not be construed as legal advice or offering a legal opinion. Nor is this publication an offer to represent you or to create an attorney-client relationship. This publication is intended only to provide general information, and we urge you to consult with an attorney concerning any specific situation or legal questions you may have. Pursuant to applicable rules of professional conduct, this publication may be considered Attorney Advertising.