Simplify Contract Obligation Management

The contract process does not end when a contract is signed. Contract management solutions help streamline contract lifecycles in three ways:

1. Automate manual tasks

2. Centralize contract storage 

3. Standardize contract workflows

For growing organizations managing a high volume of contracts, the process of tracking and managing contractual obligations is another aspect of the contract lifecycle that can easily overwhelm legal teams tasked with ensuring the business satisfies these commitments. 

Managing obligations can be difficult and tedious, especially when trying to identify and track them at scale. Most customers do this completely manually today, or not at all, which leaves them vulnerable to mistakes and oversights that result in revenue leakage, regulatory and financial risk, and missed opportunities for savings.

Here we explore common contract obligation management challenges and how contract management tools can help simplify this process even as the volume of contracts increases.

What are contractual obligations?

By definition a contract is an agreement between parties creating mutual obligations enforceable by law. A contractual obligation can come in different forms, including the completion of certain tasks, avoidance of certain acts, delivery of products or services, and payments. Parties that fail to fulfill their obligations may face legal consequences. 

Tracking obligations helps companies stay compliant and reduce their contractual risk. These obligations can be as straightforward as payment terms (Tenant will pay rent no later than the 5th of every month) or can be as nuanced as detailed ongoing encryption requirements related to data privacy standards. 

Common obligation types include:

• Background check required

• Certificate of insurance required

• Compliance terms

• Credits/Penalties/Refunds

• Invoicing and payment terms

• Notice requirements

• Publication of uptime availability

• Restrictive covenants

• Service level commitments

• Termination requirements

The following are contract management mistakes businesses often make without a streamlined way to identify, track and report on contract obligations. 

Delivery/compensation errors

Without proper visibility into contract obligations, the company completes a sale but fails to provide the service to the customer in a timely manner. Similar errors could be made regarding the quality or completeness of the service. The company might also activate service but fail to collect payment correctly.

Unenforced obligations

Depending on activity that happens after activation, customers may owe the company penalties or fees for additional services, exceeded thresholds or missed obligations. If the company doesn’t have a firm grasp of the contents of its agreements, it may miss these opportunities for additional revenue.

Auto-renewal clauses

Without a simple way to track contract renewal dates across the entire contract portfolio, companies can become locked into expensive contracts for longer than desired. An aggregated view of contract obligations with vendors gives the business more time to assess the relationship and consider renewal negotiations with more leverage to potentially:

• Renegotiate payment and delivery terms

• Lower costs

• Leverage volume discounts

• Increase performance levels

• Address issues with the relationship

Track your Obligation Management

New Obligation Management tools make it easier for businesses to track and manage their commitments to customers and vendors with simple visuals that surface obligations within those agreements. Contract professionals can track important terms and due dates, like notice of termination dates or certificate of insurance requirements, to ensure timely fulfillment of obligations and avoid penalties of non-compliance. 

Here’s an example: 

A procurement manager reviews a new third party MSA and notes that the agreement obligates them to provide this vendor with a 90-day notice of termination. To ensure they track this obligation, it is logged with its due date and surfaced not only in their standard obligation report, but also on their Party 360 page for that vendor. Keeping track of this obligation avoids any fees or penalties associated with non compliance. 

Obligation management helps organizations stay on top of obligations to their partners – and their partners’ obligations to them. Effective contract obligation management is also useful in other departments managing a high volume of contracts, such as sales, to ensure a business is satisfying its commitments to customers.

Learn more about Contract Lifecycle Management (CLM) here.