Top 6 most common inefficiencies in contract management and how to address them

Concepts that gain traction for the importance of their meaning and message often get clouded by day-to-day use. Efficiency is one of them.

Keep in mind that efficient is the performance that takes a minimum amount of input, and delivers the highest amount of output. In corporate operations, input might mean time, money and other resources, and output can be everything from a simple document or contract, all the way to the product or service. The analysis of efficiency is obviously quantitative, and must consider all data extractable from that performance.

On the other hand, inefficient is the performance that takes more input than would be needed to provide a certain amount of output. In that case, the extra input is clearly wasted, as it was possible to achieve the same, or a better, result without using it.

As all company’s operations, contract management is not immune to inefficiencies. In fact, here are 6 ways in which your operation might be losing time, effort and money by mismanaging contracts:

1. Poor storage

If your company still keeps contracts in those old file cabinets, it’s complicating your work and you know it.

Going beyond the paper use, which is definitely not a sustainable practice, many inefficiencies are generated by poor contract storage. It is hard, if not impossible, to keep track of all active contracts, their renewal deadlines, and even of the fulfillment of all the obligations agreed upon. All that if the contract can still be found, which is absolutely not guaranteed.

As companies grow, more contracts are entered into, and filing systems become increasingly complex, aggravating all the problems mentioned above.

However, going digital, and storing contracts on computers or cloud based solutions, is not a flaw proof process. Even the simple act of saving a document must obey an internal guideline in order to ensure that all files can be easily found and their versions identified.

The lack of such standards stimulates rather creative, yet extremely inefficient, file names such as “contract”, “contract final version”, “contract final final version”, “contract final final version - notes from legal” and so on. The worst is that, even with all that you still don’t know for sure if the versions have properly been uploaded to the cloud, or if they have remained on the employee’s computer or e-mail.

Ok, our way to storage contracts is not efficient, how to solve that?

First of all, you need to make sure that all contracts are properly digitalized and stored in a single place. Then, to keep track of the negotiation records, you need to create a filing system that can be used for all documents, identifying at least date of creation and version number. Or, you can use netLex, that does all that for you in a completely automated way.

2. Lost information

Throughout the entirety of a contract’s lifecycle, much information is conveyed between the parties in environments external to the document (such as emails or phone calls), all of which should be properly registered and easily available to those who will participate in the negotiations or manage the execution. Both these phases are lengthy and can involve complex procedures that must be properly conducted in order to ensure the contract’s full effectiveness.

If all this important information is lost along the way, a tension due to inefficient communication will surely follow.

For instance: one party might get the impression that it must constantly repeat itself, and that the other is not showing enough consideration. Or even worse, one party might decide that the other seems so unprepared to conduct high level business negotiations that the partnership is no longer of interest.

I have seen this inefficient communication happen many times, but how can we avoid that?

Ideally, all communications regarding a contract should be recorded in a centralized platform, so that it is easy to visualize and to access whenever the information is needed. If it is not possible to record the communication, as would happen, for example, with calls or meetings, the outlines of what was discussed should also be properly documented.

With netLex it is possible to maintain such a registry, as all negotiation chats and communications are automatically recorded in association with the contract debated.

3. Lack of visibility

Of course, you are aware that the company is party to several contracts, but, if your task is to manage these documents, do you have full visibility of them? Is it possible to find important pieces of information easily? If the answer is no, the contract management is generating another inefficiency.

The lack of visibility of a contract’s terms and conditions implies that the manager must go through the entire document just to find one specific piece of information. This demands much time and effort, and is hardly scalable as operations get more complex.

We lack visibility in our contract management, what should we do?

It is considered good practice to add executive summaries to contracts, including all relevant information in a one page document before the contract’s terms themselves. Or, you could use netLex, which automatically compiles all the information needed, with the added possibility of filtering documents by any given element.

4. Poor deadline management

Contracts establish many time-framed obligations, and an efficient management will be up to date with all of them. This means not only to be aware of the existence of those deadlines, but also of the areas in the company that must be engaged so that the obligation is properly fulfilled.

It may seem simple, but the truth is that many times these deadlines are precariously followed in a manually filled spreadsheet, susceptible to the so called “clerical errors” that may result in the failure to comply with the agreed obligations. Needless to say, that could trigger contractual fines and penalties, as well as a civil lawsuit, potentially costing the company hundreds of thousands of dollars.

Moreover, if your contract has an evergreen clause, determining automatic extension without amendment, the failure to keep track of this deadline may bind the company in an agreement it no longer desires. This only reinforces the need for effective deadline management.

I have no confidence as to how my deadlines are managed. How can I address that?

The first step to properly manage a contract’s deadlines is to identify all of them. Then, you must organize a way to easily visualize all of those relevant dates. Or, you could use netLex, where all this information is extracted from questionnaires and centralized in a single platform. It is also possible to engage other areas of the company in the workflow and keep track of execution, as well as to set alarms to warn of the coming deadlines.

5. Overly Restrictive access

Of course, not all documents should be openly accessible to all employees or areas inside the company, especially due to information security issues and strategic concerns. However, some contracts, or even documents regarding the company, should be easily accessible to all who may need them.

It would be the case, for example, of the articles of association, which contain important information about the company’s internal practices and might be needed to guide management.

It is inefficient to establish an over restrictive access to those documents, since it would generate a constant flow of access requests, which not only adds workload to the areas responsible for guarding these files, but also might slow ongoing operations or negotiations.

If it is really necessary to keep a more restricted access, it is important to ensure that the requests are centralized and standardized, and can be answered swiftly by the sector in charge.

I send copies of documents and contracts through email all day long. How can I work in a more efficient way?

The initial step is to map the documents that are constantly requested and to analyze if the access to them has not been overly restricted. If the conclusion is that some measure of access control is still necessary, the requesting procedure must be centralized, simple to ask and fast to answer. With netLex it is possible to set different profiles, each of them with a level of access, as well as to establish centralized requesting workflows, to submit, analyze and answer the request in a timely and efficient manner.

6. Unnecessary engagement of the legal team in the workflow

A contract’s lifecycle up until approval can vary greatly in light of the nature, scope and impact of the obligations agreed upon. However, it is uncommon for the company to have the contract’s workflows completely mapped out and standardized, considering all appropriate rules and exceptions. It is even less usual for an enterprise to actually know if the engagement of all those areas or supervisors is even necessary.

Legal teams are often overburdened with the task of participating in all of the company’s contractual workflows, from the simplest agreements to the most complex ones. Eventually, this will press lawyers into conducting faster analyzes, which, under pressure, will increase the risk of committing mistakes.

It might not be efficient to require lawyers to go through all contracts all the time, especially if, for simpler contracts, the operational costs outweigh the eventual cost of non-compliance. Moreover, it increases the risk that, when the contract is truly important, the lawyer reading it will not be able to concentrate and take the time necessary to conduct a full analysis.

People in the legal department are always worried and working long-hours. How can we improve their work conditions?

The first measure is to honestly access what attributions of the legal department generate more value and hence should be conducted more carefully. As to the other ones, if they cannot be completely eliminated, they should at least be reduced and simplified.

In netLex your company can decide which contracts will go through the legal department and under which conditions this should happen. However, if it is important that all documents go at least through the glance of a lawyer, our platform can also assist by providing easy and accessible information on the contract, as well as by setting templates that cannot be altered, ensuring that the relevant clauses will be there.

Committed to improving contract management

Poor storage and deadline management, lost information, lack of visibility, overly restrictive access and the unnecessary engagement of the legal team are a few of the most common inefficiencies that appear in contract management.

As one inefficiency adds to another, the company loses important inputs, such as time, money and effort, overworks their employees on unproductive tasks and might even lose talents. To identify one, or more of them, in your company’s workflow should inspire a commitment to improve contract management as a whole.

Speak to our team of specialists and understand how netLex can contribute to your company’s workflow.

Giuliana Rezende
Giuliana Rezende
Giuliana is a lawyer and a Master's student at the Federal University of Minas Gerais/BR. In addition to being passionate about everything that involves the legal world, she also has a focus on management, economics and ESG. Combining all this, she is always looking for data and innovative approaches to show all the benefits of a smarter contract management.