The life of a contract only really starts after the signature and there are several management mechanisms that can optimize the results achieved at post-closure.
Although some of them may be simple, such as controlling deadlines and quality of deliveries, most companies do not have the appropriate tools to apply them. In more severe cases, these protections are not even implemented, as is often the case with some compliance clauses.
Read more about contract management at:
- Top 6 most common inefficiencies in contract management and how to address them
- Three sources of risk in supplier management that you must eliminate once and for all
In this text you will see a series of best practices for building mechanisms to manage supplier contracts that will help your company to better control risks and achieve all the expected value with the agreements.
What are the types of contractual management mechanisms?
Once the contract is signed, it must be fulfilled. As obvious as this statement may seem, these documents are complex and have several layers of management:
- Delivery times
- Delivery quality
- Compliance clauses
You probably already have provisions for all these topics in your standard drafts. However, some good practices help to identify whether they are built in a way that really generates value for your organization.
What are the best practices when drawing up management clauses?
It is recommended that in the preparation and fulfillment of each of the management clauses, some questions are taken into consideration, such as, for example, if the writing is:
- Suitable for the contract’s object?
- In line with the needs and possibilities of the company?
- Proportional to the degree of Supplier’s relevance?
- Enough for operational and compliance issues?
- Revised and updated periodically?
In addition to these points, see some specifics of each contractual management layer in the next topics.
1. Control of contractual deadlines
At their simplest level, contracts often rely on milestones for time management as:
- Delivery dates
- Payment dates
- Deadlines for exchange, replacement or revision of delivery
- Renewal, termination and other deadlines
In most cases, these are elements defined without direct involvement from Legal. Ensuring the company's security, then, is up to the use of a technological tool, such as netLex, which can:
- Map all deadlines and gather this information on a unified page, simplifying monitoring.
- Notify your team about these dates in advance and inform them in cases of missed deadlines, so that the contractual measures provided for are adopted.
Document organization is essential at this stage of management! Take the opportunity to learn more about another front that generates many challenges in: No more losing contractual amendments: managing documents with netLex
2. Quality control
Beyond time, quality is also a relevant aspect in contract management. Depending on the type of agreement, the clauses need to be different:
- For service contracts: The applicable management mechanism is the Service Level Agreements (SLA), structuring the quality parameters for evaluating that delivery.
- For contracts involving goods: The applicable management mechanisms are quality control and inspection clauses, for example.
In both cases, some good practices are recommended, such as:
- Quality criteria: these parameters can be quantitative (such as speed of delivery) or qualitative (such as degree of satisfaction).
- Assessment methods:
- Customer rating: in the case of products, for example, it is possible to carry out a quality assessment by sampling. Additionally, in the case of services, it is common to evaluate the NPS, or net promoter score, to understand how satisfied customers are with their experience.
- Production of reports by the suppliers themselves: some suppliers are able to issue reports on their performance, which can inform the evaluation of the service’s quality. This is the case, for example, of software availability time.
- External certification: in relation to some contractual objects, especially in highly regulated areas, it is possible that certifying agencies make an assessment of the regularity of the product or service in the light of the applicable legislation.
- Assessment deadlines and periodicity: here it is important to build an evaluation calendar that is sufficient for the company and possible for the supplier. The idea is not to impair the fluidity of activities, but to ensure that failures are noticed in a timely manner. As you've already seen in the previous topic, it's ideal to work with a tool that issues deadline alerts to keep the schedule always up to date.
- Consequences of noncompliance: in case of violation of the expected quality parameter, it is essential to have a system of well-described consequences. Assess the possibility of predicting not only effects for non-compliance, but also credits for exceptional performances.
3. Supplier audit
More often than companies would like to admit, contract management is restricted to topics 1 and 2 on this list. However, not only of deadlines and deliveries are agreements made up, there are also compliance clauses. And that's where the danger lies.
We see several news stories in the press about large organizations envolved in scandals of violations of labor laws, environmental and human rights in general, in addition to cases of data leakage. In the overwhelming majority of the examples, the problems are found in the supply chain.
The periodic assessment of suppliers through audits is one of the contractual mechanisms that works best to prevent this kind of scenario.
There are three most common types of audit:
- Financial audit: examines financial records and other documents of the supplier, with the purpose of verifying the amounts charged and/or credited in the fulfillment of the contract
- Compliance audit: investigates supplier documents and facilities to ensure compliance with applicable legislation, in addition to other specific contractual provisions.
- Quality audit: very similar to the quality control mechanisms seen in the previous topic, especially in the case of certifications issued by third parties.
Some best practices recommended by World Commerce and Contracting Organization to build clauses that structure this type of management mechanism are:
- Stipulate the extension of audit rights, predicting the methodology, scope, frequency and whether or not to include subcontractors, in a manner compatible with the risks of that specific supplier.
- Predict the items or information to be excluded from the audit, such as confidential or sensitive supplier information. If it is not possible to remove this data, observe ways to ensure their protection.
- Distribute the costs between the parties to the contract, in a way that avoids attributing disproportionate or unnecessary expenses to those involved.
- If the audit will be carried out by third parties, it is up to the contracting party to ensure that they observe the guidelines that were outlined in the contract with suppliers
Structure your contract management with netLex
Writing the contract management mechanisms well and adopting the best practices in the construction of these clauses is just the first step to achieve excellence in the administration of your company's agreements.
It is still necessary to count on the proper tools for this initiative to effectively bring results.
netLex is a software that makes the management of all your organization's contracts simpler and safer. In addition to ensuring the inclusion of all necessary clauses, with the system you can also structure information about audits, as well as analyze and create alerts to remind your employees about deadlines and other relevant milestones.
To better understand how netLex helps you manage contracts, talk to our experts here!