Well-drafted contracts are at the core of any solid business relationship. They play a central role in protecting the interests of the parties involved and establishing the scope of any commercial relationship.
When drafting contracts, authors must be clear and concise with all aspects of a business deal, as every contractual term written on an agreement has a legal impact. With poorly-drafted contracts, businesses face ambiguity and misunderstandings that can derail trade. Further, authoring mistakes may result in burdensome financial costs and even damage the reputation of brands.
Crafting a streamlined authoring process is one of the most significant aspects of effective contract management. In the absence of such a process, even contract authors with strong contractual and contextual knowledge might oversee minor concerns that could result in major consequences.
In this blog, we'll explore three critical attributes in the authoring stage that can drastically reduce the chances of risk while also bringing down operational costs and improving contract performance.
Contract templates speed up contract drafting. Generally, contract managers hold a set of contract templates for commonly used contract types. Using these templates, contract owners can quickly draft contracts by adding and modifying required contract information based on the agreement they are about to enter.
Contract templates, while outlining standard clauses and terms, do the following:
Eliminate the need to create a contract from scratch every time
Reduce the chance for human errors at the time of authoring
Allow easy introduction of organization-wide policy changes
Help ensure consistent language across all contracts
Empower any individual with limited legal expertise to author contracts
Traditionally, businesses manage their templates using multiple tools such as shared drives and spreadsheets. But managing templates across disparate systems exposes businesses to several risks. Taking the following measures can help mitigate the risks and have better control over business contracts:
Periodically check and update language in the templates to the latest industry standards
Ensure that contract authors access the latest template for contract authoring and don't copy from past contracts with outdated language
Encourage contract authors to capture language deviations in a contract from the standard language
Design approval workflows with all the stakeholders involved for high-impact/ high-value contracts and contracts with language deviations from the standard language
Clauses are the binding terms of any commercial relationship. Every agreement holds a set of standard clauses and specific clauses based on the contract type. For example, the term clause (duration of the agreement) is standard in most agreements, whereas the non-solicit clause is specific to employment agreements.
Clause language is legally enforceable. It holds the parties accountable and safeguards them from any risk or contract breach. Hence, while defining the rights, duties, and privileges of involved parties, contract clauses should also outline terms that address potential disputes in any business relationship.
Having a standard clause library with legally approved language can help mitigate business risks and improve compliance. It also facilitates reusability and scalability. If you can associate multiple alternate language options to each clause, you can eliminate the need for duplicate templates for minor changes in the nature of engagement.
Clauses are also tied closely with contractual obligations. Every obligation in a contract is essentially defined in a specific clause. Hence, one good practice that contract authors can follow is to extract the obligations associated with each clause, make a list of them, and hand the list over to the delivery team after contract execution. This makes it easy for them to keep track of the obligations, assign them to the respective business owners, and fulfill them.
Since clauses are the building blocks of any contract, managing them in a digital platform provides clause-based insights at a granular level. With analytical insights on clause usage, admins can quickly do an impact study before introducing organization-wide policy changes.
Collaboration and Peer Review
Though the predefined templates and standard clause library ensure quick and effective contract drafting, a contract owner would still need the support of peers to check the accuracy of critical contract information and other engagement-specific nuances.
Collaborating with peers or other members brings in a broader skillset to refine contractual terms and save substantial time lost in approval or negotiation cycles.
Collaboration doesn't just enable co-authoring—it also promotes peer-reviewing. So when authoring high-value contracts, you can include stakeholders with required access permission to review the contract terms. This allows them to stay aware of potential risks and opportunities present in the contract document at a very early stage.
Also, when collaborating over any word processor, ensure that the tool captures all changes made by involved members and supports version control for available documents. This helps avoid confusion and miscommunication during the review process.
Authoring contracts through the traditional approach is tedious as it requires consistent maintenance of multiple tools. It introduces operational challenges and increased costs, resulting in organizations spending disproportionate resources on contract creation when considering the value gained out of it. However, if you don't currently have a digital strategy in your roadmap, following the above practices will help you improve your contract authoring process.
Modern technology advancements empower legal teams with sophisticated contract lifecycle management (CLM) software solutions that enhance the contract authoring process and promote flawless contract lifecycle management within a single platform. These CLM solutions enable contract authoring with predefined templates powered by a standard clause library and advanced document assembly capabilities. They also promote real-time collaboration among peers with granular access permissions. With all these advanced features, modern CLM solutions stand as excellent alternatives for contract management. Forward-looking businesses are investing in these digital strategies to improve operational efficiency and scale contract performance.