Businesses not managing contracts effectively, Brodies survey claims

Nearly two thirds of businesses are putting themselves at risk of missing deadlines, wasting money on outdated commercial agreements, or ending up in expensive litigation because they are not managing their contracts effectively, according to a survey by legal firm Brodies.

A study of 138 organisations across Scotland found that over a fifth (22%) have no system in place to manage contracts with suppliers and customers. Of those that do, more than half (57%) rely on spreadsheets, online calendars or paper-based filing systems to keep track of business-critical agreements rather than a contract management system.

Despite a finding that 94% of respondents believed their organisation managed contract risk very or reasonably well, when asked how frequently they reviewed the terms of their commercial contracts, 36% said once a year or less frequently, and 10% said they didn’t know.

Brodies calims the findings suggest that many organisations are failing to monitor agreements properly, which may lead to financial penalties 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."

Mr Campbell commented that all too often a failure to meet contract terms was not deliberate, but a result of people not knowing what was in the contract, or not having the complete picture. He added:

“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."