28 Contract Management ∕ March 2017

Contract Management ∕ March 2017 29

 TARGETING RISK WITH EFFECTIVE CONTRACT MANAGEMENT

I
n the contract management life cycle, what does
“risk” entail? What are the areas of greatest risk?
How can risks be addressed effectively?
This article seeks to answer these questions, and also explains the impor-
tance of implementing an effective “contract lifecycle management” (CLM)1
solution to:

Implement a comprehensive contract management plan to address

potential risk,
Ensure the implementation of the plan,
Facilitate and automate parts of the process, and
Aid in mitigating risk.

Understanding Risk
Risk may be generally defined as “the possibility of loss or injury.”2 Risk entails
not only the potential for loss, but also for lost opportunities. In the business
landscape, risk can have consequences on many levels, affecting “economic
performance and professional reputation, as well as environmental, safety,
and societal outcomes.”3

Every organization needs to understand the effects of risk—and how to con-

trol and mitigate possible risks—to ensure the best economic and performance
results possible.

The best methods to control risk include:

To control as much as possible for uncertainties,

To pin down your processes to the extent that not too much uncertainty
remains, and
To ensure that very few uncertainties can sneak through.

Risk in the Contract Life Cycle

If you don’t control for risk in the contract life cycle, the effects are far-reach-
ing, and can lead to systemic failure to manage contracts. This can have a
very real effect on your bottom line. Your organization will suffer from such
things as:

Expense leakage,
Missed revenue opportunities, and
Violations of the law (in the event that regulations are not followed).

30 Contract Management ∕ March 2017

 TARGETING RISK WITH EFFECTIVE CONTRACT MANAGEMENT

To establish “bulletproof” contract management procedures, it is impor-

tant to understand where the “weak points” in the contract life cycle appear,
or where risk is most likely to be introduced into the process.

Weak Points in the Contract Life Cycle

Performance
Monitoring the performance of contractual obligations is essential to risk
management. If a monthly report is due or services must be completed
by a certain date, these requirements need to be tracked, whether your
organization needs to provide them or should receive them. Failure
to track and fulfill obligations can result in significant penalties to your
organization, and have consequences beyond your bottom line.

Contract Management ∕ March 2017 31


Automated Renewal of Contracts
Many organizations have an automated re-
newal process, which saves time and manual
effort when the time rolls around to renew a
contract. However, this process needs to be
routinely examined, as it entails some innate
risks, whether on the buyer or seller side.
Above all is the risk of renewing contracts
that are no longer needed. Another risk
involves contracts that are necessary, but
which are renewed without the opportu-
nity to renegotiate them. For example, cer-
tain contracts can be subject to terms that
are triggered by time—such as those with
terms of service or fees that will change
with an automated renewal, but which
can only be renegotiated in the 30 days
prior to the renewal. In such cases, if not
renegotiated prior to the 30-day window
to automatic renewal, these contracts can
result in new, unfavorable terms.
Unapproved Contracts
Contracts that are sent without approval
can also represent a significant cost. Lack of
approvals can undermine corporate author-
ity and monetary authorization policies.
Compliance
Another weak point exists if your company
doesn’t control for compliance failures. For
example, say there is a clause in the contract
requiring contractors to secure insurance
before commencing work. However, for
whatever reason, insurance is never secured,
and your organization fails to check for in-
surance. This is a failure by the organization
because its internal compliance controls
were not strong enough to avoid exposing
itself to the risk of noncompliance.
Or, say that a contract requires your orga-
nization to provide quarterly evidence of
insurance. Your organization has insurance,
but fails to provide proof. If your organiza-
tion has a
partner in the
contract, this
partner may
have terms that
allow it to pur-
chase insurance
on your behalf, but
the cost will be passed
on to your organization,
meaning your organiza-
tion would have to pay
twice for that insurance.
Inability to Access Contracts
with Overlapping Terms
It is essential to be able to quickly and effi-
ciently find all categories of contracts with
overlapping terms. For example, in Ed-
wards v. Arthur Andersen, LLP, the plaintiff
was a certified public accountant and ar-
gued that the “noncompetition agreement”
he had signed with his employer violated
California State statute because it restrict-
ed his ability to practice his accounting
profession. The California Supreme Court
agreed, and ruled that “[e]very contract by
which anyone is restrained from engaging
in a lawful profession, trade, or business of
any kind is to that extent void.”4 For organi-
zations with numerous contracts subject to
this decision, this created a need to review
all contracts that fell under California law
and contained a “noncompete” clause.
If your organization cannot search for spe-
cific subsets of contracts in a timely man-
ner, it will be at a distinct disadvantage
in locating and renegotiating contracts
containing these terms.
Targeting Risk
For any organization that participates in nu-
merous contracts throughout its business
processes, effective contract management
is an essential part of managing risk. For
TARGETING RISK WITH EFFECTIVE CONTRACT MANAGEMENT
contract management to be considered
“effective,” your organization needs to have
an established plan in place that deter-
mines procedures and benchmarks for how
contracts move through the organization.
Specifically, this plan should:
Address what contracts are coming into
and going out of the organization,
Set up parameters for the terms of contracts,
Establish where the contracts are held,
Establish who is going to administer the
contracts, and
Create a signature authority policy (so it is clear
who is in charge of approving any contracts).
The plan should be evaluated and, if neces-
sary, modified and tinkered with following
periodic, scheduled performance reviews.
Items to review include whether contracts,
products, and services are being used by
your organization, and if they are, whether
they are performing as intended.
The plan should be carried out by trained
contract managers, rather than simply as-
signed to employees in an existing depart-
ment. Contract managers have the special-
ized knowledge required to both implement
the plan and evaluate its effectiveness.
Contract Management ∕ March 2017 33
 TARGETING RISK WITH EFFECTIVE CONTRACT MANAGEMENT
Further, any effective contract manage-
ment plan should:
Ensure that steps in the contract manage-
ment life cycle are completed on time;
Guarantee that the organization and other
participants in the contract are meeting
their contractual obligations;
Address any issues of cost—such as inef-
ficiencies in the contract life cycle that are
costing the organization money;
Seek to articulate and institute what the
right contract management measures
are for the organization—e.g., rather than
tying renewal costs to the Consumer Price
Index, your organization could establish a
rule that renewal costs are not to exceed 5
percent; and
Engage the participation of key principals
in the organization—including in the legal,
financial, commercial, and contracting
departments.
Even though contracts may be the official
domain of the contract manager, they are an
integral part of the organization as a whole,
and all key stakeholders need to do their part.
Mitigating Risk with CLM Tools
(and How to Choose One)
A plan is only as good as its level of imple-
mentation. No matter how well-planned
the steps for contract management are, they
will only mitigate risk if they are carried
out—and carried out consistently and in a
timely manner. Given the complexity of
the contract life cycle in today’s business
environment, and due to the sheer volume
of contracts at play for corporate-level
34 Contract Management ∕ March 2017
businesses, effective execution depends
on a robust CLM solution.
A complete CLM tool allows you to
administer all aspects of the contract
life cycle, for both the buyer and seller
sides. There are a number of features to
consider when deciding which CLM tool
to implement for your organization. In
particular, look for a tool that:
Offers the benefits of contract creation us-
ing organization-standard agreements and
unlimited contract storage;
Allows your contract managers to:
Compare revisions and negotiate within
a secure environment,
Monitor interactions,
Route tasks to appropriate parties, and
Track progress;
Integrates electronic signatures of agree-
ments; and
Grants the ability to search and report on
text-based documents.
Targeting Specific Areas of Risk
In a complex business environment, a CLM
solution must provide the ability to target
the “weak points” in the contract life cycle—
i.e., those areas of greatest risk:
Performance—Performance violations can
be identified, targeted, or avoided alto-
gether with:
Events and reminders;
Tools that track projects, payments, and
products; and
Tasks built into the workflow to monitor
performance and ensure that contrac-
tual obligations are being met.
Automated Renewal of Contracts—Your
CLM tool can prevent the automated
renewal of contracts that are no longer
needed (e.g., by notifying the contract
manager before the renewal date and
within the viable window, so that the con-
tract can be renegotiated).
Unapproved Contracts—These will become a
thing of the past, as approvals can be includ-
ed as part of the workflow and prevent the
contract from being sent out prematurely.
Compliance—Compliance failures can be
prevented by creating contract events that
send out reminders automatically.
Inability to Access Contracts with Overlap-
ping Terms—The complexity of searching
a body of contracts for specific terms
becomes straightforward and accessible
with an effective CLM tool with numerous
methods to search contract text, including:
Keyword/phrase search capability—for
terms that are common in the clause you
are looking for;5 or
Boolean search query capability—to
refine the results from among all of the
contracts within your database.6
Optimize Plan Efficiency and
Improve Insight
A robust CLM tool should have capabili-
ties to take your contract management
plan much further. The CLM tool should
improve efficiencies in the process and
provide deep visibility into problem
areas in your contract life cycle.

One method for obtaining greater ef-
ficiency is to implement a clearinghouse
for all approved clauses, providing greater
control and visibility into your document
contents. This functionality should allow
you to upload a contract easily and the
system should then search for and add
clauses that are not yet in the library. You
want to be able to quickly view different
versions of a clause, and integrate with a
preapproved clause library to compare
changes in clause language. As an exam-
ple, you might have an assignment clause
that’s been through legal approval already.
It can be captured and used in any future
contract, facilitating the contract workflow
and approval process. An approved clause
can also serve as a point of comparison or
negotiation for future proposed clauses.
Another important functionality to con-
sider is the ability to gain insight into your
contract management practices through a
sophisticated, flexible reporting interface.
The ability to gain deep insight into contract
data—and to do so from different perspec-
tives by manipulating your view of that data—
is a key benefit of a robust CLM platform.
For example, your CLM should help you:
Track contract expiration dates,
Increase contract signature/approval
cycles,
Improve insight into contract
accountability, and
Create ad hoc reports to satisfy cross-
departmental requests.
With the help of your CLM solution, your
contract managers will:
Gain insight into workflow,
Manage projects more effectively, and
Identify which steps or contract types are
creating inefficiencies.
Conclusion
Understanding risk throughout the contract
life cycle is an essential element of contract
management for any organization with
multiple contractual obligations. Managing
risk by understanding which risks need to
be addressed, having a fortified contract
management methodology that includes
well-thought out, organization-wide mea-
sures, and a dedicated, specialized contract
management staff are vital components in
a comprehensive approach to risk.
Compliance to a thorough plan requires an
effective, full-featured CLM tool to provide
the foundation and automation on which
the plan rests. Not only does a robust CLM
solution mitigate risk and help ensure
compliance, but it can also create greater
efficiency at every stage of the contract
life cycle—from generation, to negotiation,
to approval, to renewal. Lastly, your CLM
tool can give you deep visibility into your
business contract processes, provide you
with an understanding of inefficiencies,
and deliver insight to improve efficien-
cies. With control and visibility into your
contracts to help mitigate risk, you can put
your mind at ease for yourself and your
organization. CM
TARGETING RISK WITH EFFECTIVE CONTRACT MANAGEMENT
PATRICIA GALLAGHER, PHD
 Content writer, Conga Novatus.
 Collaborates with the Conga Novatus
contracts team to bring robust solutions to
the world of contract life cycle management.
ABOUT CONGA NOVATUS
Because proper visibility, control, and analysis
are critical in effective corporate governance
and overall management best practices, Conga
Novatus offers an enterprise-grade CLM solu-
tion that empowers companies to enforce
contract language, mitigate risk, and develop
policies. Conga Novatus’ cloud-based soft-
ware makes drafting, negotiation, workflow and
approvals, reporting, and renewal manage-
ment easy. Developed with the help of its User
Advisory Counsel, the Conga Novatus CLM
solution takes into account the business chal-
lenges that complicate the contract life cycle
for world-class companies. Its customer-centric
dashboard provides a real-time, personalized
display of data and statistics while its rapid
implementation ensures contracts are on track
quickly. Learn more at https://getconga.com/
solutions/contracts/novatus/.
ENDNOTES
1. Contract lifecycle management is generally
defined as “the proactive, methodical manage-
ment of a contract from initiation through award,
compliance, compliance, and renewal.” (“Contract
Lifecycle Management Benefits and Best Prac-
tices,” Villanova University, www.villanovau.com/
resources/contract-management/contract-
lifecycle-management/#.WIfI4dIrLIU.)
2. “Definition of Risk,” Merriam-Webster,
www.merriam-webster.com/dictionary/risk.
3. ISO 31000, “Risk Management,” www.iso.org/iso/
home/standards/iso31000.htm.
4. Edwards v. Arthur Andersen, LLP, Cal. Sup. Ct., 81
Cal. Rptr. 3d 282 (2008).
5. E.g., in the Edwards v. Arthur Andersen, LLP, exam-
ple (see ibid.), you could search for the keyword
“compete.”
6. E.g., in the Edwards v. Arthur Andersen, LLP, exam-
ple (see note 4), you could search for all contracts
subject to California law, or all contracts with a
“services” contract type.
Contract Management ∕ March 2017 35