5 Common Contract Issues and How to Address Them
- June 12, 2024
- 15 min read
- Bethany Mullinix
Introduction
How often do you find yourself clenching your jaw in frustration or groaning at your computer screen over yet another contract issue? How many days in a row are you stuck putting out fires because of the same issue that caused an emergency the week before?
For many legal teams, it’s more often than you’d like to admit.
Contracting involves so many moving parts. It’s not surprising that traditional operations result in continuous problems. The thing is, you can only resolve an issue once you know it exists.
So it’s time to be honest about the everyday contracting snags that make you want to pull your hair out. (It’s okay, we don’t judge.)
Understanding Contract Issues
Contract issues often stem from the complexity of the contracting process, which involves drafting, negotiating, executing, and managing contracts across multiple departments. Miscommunication, lack of standardization, and inefficient tracking systems contribute to these issues. Recognizing these factors can help you understand why contract problems arise and how to tackle them effectively.
In the following sections, we’ll highlight some of the most common contract issues enterprises face and how you can address them to facilitate easier, more efficient processes. By the end, you’ll be ready to march straight to your supervisor with definitive ways to improve the entire legal team’s workflow.
How to Identify Pre-Contract Issues
Before diving into the core challenges of contract management, it’s essential to address some foundational pre-contract issues. These preliminary considerations can significantly influence the effectiveness of the entire contracting process. Here are three critical pre-conditions to keep in mind:
- Conducting Thorough Due Diligence: It’s vital to perform comprehensive due diligence on the other party involved in the contract. This involves researching their financial stability, reputation, and previous contractual engagements. Understanding their strengths and weaknesses can help mitigate risks and ensure a more balanced negotiation.
- Establishing Realistic Expectations: Setting achievable and clear expectations from the outset is crucial. Both parties should have a mutual understanding of their goals, deliverables, and timelines. This alignment helps prevent misunderstandings and fosters a collaborative environment throughout the negotiation and execution phases.
- Drafting a Clear and Comprehensive Contract Promptly: It’s crucial to formalize agreements with a well-structured contract as soon as possible. While many assume that a signed document is the only form of a contract, agreements can also arise from oral negotiations and informal communications. To avoid ambiguity, document all agreed-upon terms clearly based on your due diligence and established expectations, and obtain formal agreement from the other party. This proactive approach clarifies the relationship and serves as a reference point in case of disputes, reducing the risk of misunderstandings.
Top 5 Common Contract Issues
1. Poor Contract Storage
Too often, departments across enterprises have their own ways of storing their contracts. Some rely on disjointed ERP, P2P, or CRM systems. Others think it’s fine to pass contracts through email and assume they’ll be able to find them later. There are even teams that still store contracts as physical copies in filing cabinets.
None of this results in strong contract management. Poor contract storage leaves you with:
- Lack of Version Control — Expect to miss edits, refer to older, inaccurate versions, and delay contract execution as you wait for approvals.
- Unsecure Contract Data — When your contracts aren’t protected in a safe repository, you run the risk of non-compliance and data breaches.
- Minimal Searchability — With agreements scattered across the enterprise, you can’t find relevant contracts when you need them. That lack of visibility snowballs into even bigger issues.
2. Misaligned Contract Language
When it comes to contracts, language is everything. The wording you choose to include — or omit — makes a huge difference in how the agreement affects your business and how firmly you can enforce it in court.
But when contracts bounce between teams and different people have a hand in drafting and negotiation, it shouldn’t shock you to find someone made a mistake.
Without a way to standardize your contract language, you’re left with:
- Missing or Deviated Contract Clauses — Unless you have a strong playbook defining your preferred language, your agreements may lack important contract clauses that would otherwise protect your enterprise.
- Unclear Language — Overly general contract language leaves too much room for interpretation, so you end up guessing payments, obligations, and schedules.
- Heightened Compliance Risk — Unfavorable or missing terms increase contract risk if your agreements don’t meet regulatory or internal standards.
3. Increased Bottlenecks
As a legal team, you can only do so much in a day before things get backed up and tasks pile on.
When that happens, don’t you just love the “just checking in” and “bumping this back up” emails that come through? How about not-so-subtle digs of “Well, I’m just waiting on legal to move forward” on team calls?
No one likes being a bottleneck. But relying on manual contracting processes almost guarantees you’ll become one, typically by no true fault of your own.
Traditional processes leave you struggling with:
- Slow Contract Creation — You can only build new contracts from scratch so fast when everyone in the organization hits Legal with requests.
- Longer Review Cycles — Manually reading and reviewing every contract takes a long time, straining business relationships when parties prefer to move faster.
- Delayed Execution — As you hound people for approvals and get wet signatures, you can miss out on time-sensitive deals or pricing if you execute too late.
4. Subpar Obligation Tracking
Whether it’s delivering a product or completing a partnership within a certain timeframe, contract obligations are vital for ensuring you get the full value out of your agreements.
A single enterprise contract holds hundreds of pieces of data, including the how, when, and where of deliverables and other obligations. You can’t track every detail by hand.
Trying to manage all of your contract obligations and key terms leads to:
- Forgotten Deliverable and Payment Dates — Missing these important days can result in a breach of contract or contract value leakage; plus, it can put a strain on your business relationships.
- Daunting Performance Measurement — If you can’t track obligations, you can’t tell if your contracts are helping or hurting your business.
- Difficult Regulatory Reporting — Not knowing if you’re meeting obligations can also make it hard to prove that you’re meeting regulatory standards and laws through your business decisions.
5. Unintentional Renewal Mistakes
Remember when you forgot to cancel a streaming subscription and only realized after seeing the charge on your credit card? Imagine how frustrating that is when the charge is $10,000 instead of $10.
Contract renewal problems are among the most common issues enterprises struggle with, leading to hundreds of thousands of dollars in revenue loss.
Why do so many firms make this costly mistake? Because they don’t have visibility into key dates.
When you can’t track key contract dates and conditions, you end up with:
- Missed Renewal Deadlines — You didn’t know when you had to actively renew a contract, and now the deadline has passed, so you’re stuck negotiating new terms and pricing.
- Accidental Auto-Renewals — You wanted to cancel a contract, missed the deadline, and an auto-renewal has locked you in for another payment term.
Best Practices for Managing Contract Issues
To effectively manage contract issues, consider the following best practices:
- Establish Clear Procedures: Create standardized processes for drafting, reviewing, and storing contracts to reduce variability and errors.
- Utilize Technology: Leverage contract lifecycle management (CLM) software to streamline workflows, enhance visibility, and automate key tasks.
- Train Your Team: Ensure all team members understand their roles in the contracting process and the importance of compliance and accurate documentation.
- Conduct Regular Audits: Periodically review contracts and processes to identify recurring issues and areas for improvement.
- Foster Collaboration: Encourage open communication among departments to address concerns and ensure everyone is aligned on contract terms and obligations.
How CLM Solves Contract Issues
Now that you know some of the common contract issues you can face, it’s time to nip them in the bud. But how do you do that?
With contract lifecycle management solutions, of course.
CLM Platforms, especially those powered by AI, allow you to contract at the speed of business, with the speed, accuracy, and efficiency otherwise unachievable with manual processes. Here’s how.
Establish an Intelligent Repository
Store and organize your business contracts in a single, intelligent repository. AI CLM solutions can ingest your legacy contracts from any source and turn them into tagged searchable assets.
Once you establish your contract repository, you can use your CLM solution to gain full visibility into your contracts, protect sensitive data, and get the answers to key business questions.
Standardize Your Contract Templates
Set up your own playbook that lets teams across the enterprise collaborate on contract creation. Contract management software lets you define positions for every step of the lifecycle and ensures authors use language from a pre-approved contract clause library.
From there, trained AI automatically highlights missing clauses and redlines language that deviates from your playbook, streamlining drafting and negotiation.
Automate Your Contracting Operations
Keep track of your contract operations with automated, no-code workflows that match how your team works. CLM lets you automate signature collection to execute faster, get reminders for renewal dates, and optimize operations to drive efficiency.
Closely Monitor Obligations
Visually track every contract obligation to keep your legal team, customers, and suppliers aligned. Contract management solutions allow you to trace any obligation to the specific clause it relates to and identify the financial impact of each obligation.
Manage issues and tasks related to obligations in a single palace and use this visibility to reduce regulatory reporting time.
Optimize Your Contracting Processes for Max Value
Common contract issues are a thing of the past with the right contract lifecycle management solution.
Sirion delivers every market-leading CLM feature you need in one place, built on AI. Empower teams across your enterprise to come together on a single platform and collaboratively contract to secure better outcomes and protect your bottom line.
See what you can do with Sirion — schedule a demo today.