Unlock Contract Efficiency with a Simple Audit of Your Templates

Introduction

Companies often wonder why they should regularly audit their contract templates. This practice, which we implement regularly, often reveals a goldmine of opportunities for streamlining and improving efficiency of contract flows.

When a client approached us to improve its template customer contract, our first step was to conduct a thorough audit of all the contract templates in use. For instance, in one case, we were able to merge 12 separate templates into a single, standardized template applicable across all countries. In other cases, we’ve found multiple templates for different products or specific templates for government-funded versus non-subsidized projects. These findings underscore a crucial step: before improving your templates, it’s essential to first inventory what templates are in use. Only then can you effectively create or refine your templates for maximum efficiency.

1. The Necessity of Regular Contract Template Audits

Contract templates form the foundation of your business agreements, defining the terms and conditions of your relationships with customers, vendors, and partners. Over time, without regular oversight, these templates will (i) be amended in the organisation – often new templates emerge – without knowledge of management and Legal and (ii) be incomplete due to change in laws and products sold, leading to inconsistencies and legal vulnerabilities. A regular audit helps you:

• Risk mitigation and compliance updates
• Maintaining legal efficiency
• Identifying and eliminating redundancies
• Ensuring consistency across all agreements
• Enhancing negotiation speed and effectiveness
• Reducing legal disputes and misunderstandings
• Standardizing terms and conditions
• Keeping templates up-to-date with current laws and regulations
• Uncovering unauthorized or outdated templates
• Improving overall business relationships through clear and fair agreements

2. Steps to Conduct an Effective Contract Template Inventory

a. Gather Information from All Departments

Your legal department might not be aware of every template in use. Engage with various business units—such as Sales, Partnerships, Procurement, and HR—to gather a comprehensive list. Ask them to provide the exact templates they use daily to ensure accuracy.

b. Categorize Templates

Once collected, categorize the templates by:

• Type of Agreement: Customer, vendor, or partner agreements.
• Product/Service: Specific templates for different offerings.
• Geography: Templates used in different countries or regions.
• Language: Versions in different languages.
• Department: Templates specific to various business units.
• Special Conditions: Templates for specific situations, like government-funded projects versus non-subsidized ones.

c. Evaluate and Standardize

Review each template to identify discrepancies and outdated clauses. Standardize the language and format to ensure consistency across all agreements. This process not only reduces errors but also improves the clarity and enforceability of your contracts.

3. Addressing Common Issues in Customer, Vendor, and Partner Agreements

a. Customer Agreements

• Scope of Services: Ensure a clear description of the services or products provided.
• Payment Terms: Standardize payment schedules and terms.
• Liability Clauses: Update liability and warranty clauses to reflect current business practices and legal standards.

b. Vendor/Procurement Contracts

• Quality and Delivery Terms: Standardize terms related to quality control and delivery schedules.
• Compliance: Ensure all vendor contracts comply with relevant laws and regulations.
• Payment Terms: Regularize payment structures and terms to avoid discrepancies.

c. Partner Agreements

• Roles and Responsibilities: Clearly define the roles and responsibilities of each party.
• Profit Sharing: Standardize profit-sharing mechanisms.
• Exit Strategies: Include clear exit strategies to handle potential dissolution scenarios.

4. Uncovering Unauthorized Templates

During your audit, it’s not uncommon to discover templates in use that the legal or management teams were unaware of. These unauthorized templates, often created without prior approval, can pose significant risks. Identifying and rectifying these situations is crucial to maintaining legal and operational integrity. Ensure that all templates are vetted and approved to align with your company’s standards and legal requirements.

5. Benefits of a Well-Organized Contract Template Inventory

Maintaining an organized inventory of your contract templates offers several benefits:

• Improved Negotiation Speed: With standardized templates, negotiations become quicker and more efficient.
• Reduced Legal Risks: Consistent templates minimize the risk of legal disputes.
• Enhanced Business Relationships: Clear and fair agreements foster stronger business relationships.

Conclusion

Regularly auditing and organizing your contract templates is a crucial step in enhancing your business’s legal efficiency. By taking the time to inventory, evaluate, and standardize your agreements, you can streamline your processes, reduce risks, and build stronger, more transparent business relationships.

For more detailed insights and personalized advice, feel free to contact us or schedule a consultation.