Risks are inherent in any contract. Risk management is all about working within the acceptable levels of risk and proactively managing the accepted risk exposures.
Making the Legal team solely responsible for minimizing risks is not an effective risk management practice. A contract can create many types of risks – delivery, quality, financial, reputational, legal, statutory, and others. At the most basic level, the risk management requires a multi-functional approach with all stakeholders participating in the contracting process. They must collaborate during drafting and negotiations to identify, evaluate, and minimize risks in their respective domains.
But unfortunately, traditional contract review tools don’t make this collaboration easy. Let’s take an example – a sales manager receives the draft from the customer and requires delivery, finance, legal, taxation, and IT team to review it. The Sales manager emails the contract to all the stakeholders. Every stakeholder goes through the contract, finds the relevant sections, puts their edits/ comments and emails the edited draft back to the sales manager. With every review, a new version of the draft is created and very soon multiple versions of the same contract start floating in the emails. The sales manager is required to collate all the comments and edits of the stakeholders and prepare a working draft to take back to the customer.
Reflecting over the above example, it’s not difficult to see the limitations of this approach but it’s quite clear that with this approach you not only require a lot of manual efforts to drive the collaboration, but it’s also very easy to miss the complex edits by a stakeholder. A wrong version can be accidentally picked up, and there are fair chances of completely missing the key recommendations by one or more stakeholders.
So, when you struggle with the challenges of manual approach (which is obviously prone to errors), here comes the savior i.e., Technology. Most of the Contract Lifecycle Management (CLM) solutions provide the workflow capabilities that make such collaboration possible. We at smartContract understand the importance of collaboration in the contracting process and have made the ease of collaboration a central theme of our product. Here are some of the examples of how smartContract can help multiple stakeholders work together and facilitate a disciplined approach for Contract Risk Management.
- smartContract comes with a powerful workflow engine that establishes the clear responsibilities in the contract review process. It ensures that the right contract reaches the right stakeholder at right time during the review and negotiation process.
- Specific clauses can be marked for review and assigned to the respective stakeholders – thus bringing focused approach to the review process.
- Multiple stakeholders can review the draft in parallel and thus reducing the overall review time. The system automatically collates all the edits by the stakeholders and creates the next working draft thus eliminating the need for manually collating the comments/edits.
- Every edit is duly captured in an audit trail. The draft versions are maintained and the system ensures that only the latest version of the contract is used at every stage of the process.
- With a summarized view of the edits and a complete trail of the changes, the system makes it easy to understand how a certain clause or contractual position was negotiated – thus bringing a complete transparency into the contracting process.
Collaboration is key to risk management in contracts but without the right technology, effective collaboration is not easy. To learn more about smartContract’s collaboration capabilities and how it can help with the contract risk management process, visit us on smartContractclm.com