While contracts run modern commerce, they come with a certain amount of inherent risk, especially if poorly managed with manual processes or outdated electronic depositories. We have discussed this at length on this blog, and you can read more about the risks of contract mismanagement here. This week we want to look at the new risks the COVID-19 crisis has brought to the modern enterprise, and how to best mitigate those risks.
Force Majeure
While not new to legal professionals and contracts, this standard legal provision has come under scrutiny with some companies being unable to meet some contract obligations. With the initial COVID wave causing new talks of shutdowns and barriers to reopening the country, the popularity of force majeure looks to continue throughout 2020.
For suppliers of goods or services, the pandemic has laid bare the risk of not having a solid risk majeure in place. If you haven’t already, it is time to review your force majeure clauses in contracts or perhaps see if you can renegotiate contracts to include a force majeure or other provision that will reduce your liability in the event of another worldwide shutdown.
For procurement and other buy-side teams, the pandemic has uncovered a new risk in force majeure clauses that were likely overlooked in past negotiations. Legal teams around the world are likely reviewing and re-evaluating the risks of these provisions. This task is made much easier with a secured, centralized contract management system. Advanced contract management can also use artificial intelligence to review contracts and apply a risk score based on the users preferences, which can be reconfigured as new threats arise.
Vendor/Supplier deliverability issues
While force majeure is the legal mechanism that shields suppliers from liability, businesses still must deal with the shortage or lack of goods and services. If one vendor or supplier cannot fulfill a service, how quickly can your organization pivot to another provider or manufacturer? If your procurement processes are too slow to respond to unforeseen circumstances, then these interruptions can be a serious threat to business survivability. In this instance, the threat is in the contracting process, not the contract itself.
Efficient and adaptable procurement processes can be employed to reduce this risk and to provide insurance against future crises or interruptions in supplier deliverability. With configurable contract lifecycle management processes, the onboarding process can be reduced from weeks down to a few hours, as was the case with Williams Lea Tag’s Agiloft CLM. This effort won the company the IACCM Innovation & Excellence EMEA Award for Operational Improvement.
Additionally, with the collaboration enabled through vendor/supplier portals and real-time reporting of contract performance, companies can more quickly adapt to changes in the supply chain.
“Having solid metrics, we can rely on with automated data analysis will enable us to see things that are developing before they become a crisis,” Fraser Health Executive Director, Mental Health & Substance Use, Andy Libbiter said. “It helps us in a collaborative way to help our outside providers cross correct and adjust to changing circumstances.”
Learn more in this blog post about how Fraser Health Authority has taken this a step further, to be able to accurately forecast changes in the organizations vendor landscape.
Delays due to remote work
The third new contract risk organizations are seeing in the time of COVID is delays in closing new deals or negotiating contracts due to being forced to work from home. By this we mean all of the delays associated with approvals and other deliverables required to sign and execute a contract. These delays could be due to lack of access to the contract or because new employee work from home schedules have further slowed down the approval process.
Without a secure, centralized CLM solution, employees working from home will not be able to access contracts and organizations will leave money on the table as deals go cold. With a modern CLM system, automated notifications enable staff to approve contracts and agreements via text or email. So even if life has become more complicated during the pandemic, automated CLM can at least help simplify work and keep contract workflows on track.
In a recent webinar, Corporate law consultant Ellen Nendorf, JD discussed this topic at length, sharing the best practices for managing contractual risk and how you can successfully navigate the challenge from your new home office. Watch the webinar below:
This was an installment of the Agiloft Webinar Series, a weekly webinar series discussing how to add value and minimize risk in your contracts as well as how to utilize Agiloft to achieve these goals.
Up next is another webinar with Ellen titled “Save time on Contract Review with AI.” Sign up for this and future webinars on our Events and Webinars page.
