Two-thirds of businesses not managing their contracts effectively

Two-thirds of businesses not managing their contracts effectively

A survey by Brodies LLP has revealed that almost 66 per cent of businesses are putting themselves at risk of missing deadlines, wasting money on outdated commercial agreements, or being forced into expensive litigation because they are not managing their contracts effectively.

The study, which canvassed the views of 138 organisations across Scotland, found that over a fifth (22 per cent) have no system in place to manage contracts with suppliers and customers.

Of those that do, more than half (57 per cent) rely on spreadsheets, online calendars or paper-based filing systems to keep track of business-critical agreements.

Only 42 per cent use a contract management system.

Despite the finding that 94 per cent of respondents believe their organisation manages contract risk very or reasonably well, when asked how frequently they review the terms of their commercial contracts, 36 per cent said once a year or less frequently, and 10 per cent said they did nott know.

The findings suggest that many organisations are failing to properly monitor agreements, which may have financial penalties attached if legal obligations are not met.

Failure to keep on top of contracts can put businesses at risk of missing deadlines, weakening their bargaining position or tying them into more costly terms.

Grant Campbell, head of Brodies’ commercial division, said: “Twenty years’ experience of advising clients on contracts has taught me that organisations often spend far less time and effort on managing contracts than on negotiating them in the first place.

“I have often heard it said that a good contract is one that you can put in the drawer once it has been signed without the need to look at it again. To my mind, this is not only untrue but also very dangerous, as it suggests that there is no need to manage contractual relationships once the document has been signed.

“Contracts contain important legal rights and obligations, and a failure to adhere to them can have serious consequences, including costly litigation. All too often the failure to meet contract terms is not deliberate, it is a result of people not knowing what is in the contract, or not having the complete picture.

“Clearly, many organisations are confident they manage contracts well but this may be misplaced when you consider the results of this survey.

“There are very good reasons why you should invest in a dedicated contract management system. Taking appropriate action at the right time will enable you to avoid paying unnecessary costs, provide you with the opportunity to negotiate better terms and save a considerable amount of time and money spent resolving issues.”

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