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What Are Common Errors to Avoid in Contract Management?

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As a supplier of products or services, effectively managing your contracts is crucial for the success of your business. Managing contracts will help you fulfil your obligations successfully and prevent risks. However, you should avoid critical errors in contract management. These mistakes could result in various issues, from legal claims to financial losses. This article will explore some of the most common errors in contract management and why you should avoid them.

Why is Contract Management Important?

Contract management is crucial for effectively managing contractual commitments and preventing potential risks your business could face as a supplier. By implementing effective contract management, you can:

  • smoothly and successfully perform your contracts; 
  • keep your customers happy and win repeat business;
  • guard against legal risks, which could otherwise be damaging; and
  • save time and costs that you would otherwise spend resolving problem issues. 

A good contract management process will help you implement, execute, and manage contracts smoothly from the initial negotiation stage to contract completion.  

What Are Common Contract Management Errors to Avoid?

Businesses can make contract management errors for various reasons. For instance, they may require additional time or resources to develop an effective contract management process. 

Below are some common errors that your business should work to avoid.

Failing To Use Well-Drafted Contracts.

Contracts are vital legal documents for protecting your business from risk. Therefore, you should approach contracts with great care and attention. You should prioritise your contracts from the outset and ensure they are well-drafted before negotiating them with customers. Poorly drafted contracts can lead to several risks and problems throughout the contract lifecycle.

Examples of poorly drafted contracts include contracts containing: 

  • unclear terminology and provisions could lead to misunderstandings and mismatched expectations;
  • a lack of specific obligations to determine which products or services you will deliver;
  • ambiguous payment terms, which could lead to problems with invoicing; and
  • contracts that overlook the potential legal risks you could face – for instance, there is no limitation of liability clauses to limit your liability for breaching a contract. 

Poorly written contracts can confuse differing expectations and, in the worst case, disputes with your customers. To avoid these issues later on, you should begin customer relationships with clear, well-drafted, and robust contracts. By having well-drafted contracts, you significantly reduce the chances of receiving complaints and facing customer disputes.

Failing To Understand Your Contractual Obligations. 

Failing to understand your contracts and their meanings is also a critical mistake in contract management. This error can increase the risk of contract breaches and disputes. 

Contracts are legally binding documents. Your business must, therefore, understand and adhere to all its contractual obligations. If you have committed to an obligation contractually, you are bound to comply with it. 

You should avoid this mistake by ensuring:

  • you read your contracts and know what they say. In particular, be clear on your contractual obligations to your customers;
  • you take legal advice on any contractual provisions you are unclear about, for instance, ‘legalese’ terms; and
  • you train all relevant staff, such as project managers, on their obligations under the contract.

By getting to know your contracts and understanding your obligations, you are less likely to fall into breach of them. 

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Poor Document Management and Record Keeping

After you sign contracts, a critical error after signing contracts is filing them away and forgetting about them. Disorganisation and poor recordkeeping can cause several problems, such as delays and breaches of contractual obligations. 

For example, if you enter a long-term contract with yearly deliverables and your business fails to track its obligations, this could lead to problems. For instance, your business might miss key delivery dates, prompting customer complaints or disputes. Misplacing contracts due to improper storage can also lead to disputes and breaching obligations.

To avoid these mistakes, you should:

  • document and set reminders for important contract dates, like the dates for delivering key deliverables in your contract;
  • log your progress on contracts, noting when you have delivered the key deliverables to your customer. Using a project plan can assist you in managing this; and
  • keep your customers updated on your progress and any potential issues, including delays.

When you are negotiating different terms with different customers, it can be challenging to keep track of the terms you have agreed. Contract management software may help your business keep on top of your contracts and commitments effectively. You can also consider using contract summary sheets as reminders of the key obligations under your customer contracts. 

The standard errors highlighted above can result in significant consequences for your business. For instance, unaddressed customer complaints may escalate into lengthy and expensive disputes, taking up your valuable time and resources.

However, such pitfalls can be avoided by establishing a robust contract management framework. Businesses can preemptively avoid these risk factors by implementing robust contract management practices and procedures.

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Key Takeaways

As a supplier of products or services, you must avoid these common contract management errors to maintain the integrity of your business operations. You can prevent these errors by drafting and using clear and robust contracts that outline the obligations of each party involved. Moreover, you must thoroughly understand the terms of your contracts, securely store them for easy access, and diligently monitor your performance under each agreement you enter into.

If you need advice on effective contract management, our experienced commercial contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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Sej Lamba

Sej Lamba

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