Top Practices for Contract Compliance

Some concepts have proven to be relevant to almost every profession, due to what they stand for. “Compliance” is easily one of these concepts. In many professions, it is simply not enough to get the job done, regardless of how excellent. For context, a ‘trade’ or ‘investment’ carried out by an investment banker must be seen to comply with all governmental policies and regulations. An aircraft purchased by an airline must also be according to the specifications of the country’s aviation authority.

In this article, however, our focus will be on contract compliance.

CONTRACT COMPLIANCE

Compliance in contracts simply means that all the boxes have been checked on the contract. Contracts can be quite tricky sometimes, and any parts left unchecked could have negative impacts on the contract, and automatically, the parties. Depending on the type of agreement, there are many important parts that make the contract whole. Contract Compliance means ensuring that all these parts are included in the contract, without any mistakes.

Especially in complex transactions, ensuring contract compliance may be quite challenging. For example, contracts, where the contents of one segment affect subsequent segments, are more delicate and require more intentional efforts in ensuring their compliance. This article gives a general insight into how to ensure contract compliance, and prevent unexpected disputes between parties, as best as we can.

STANDARDIZED TEMPLATES

Creating standardized templates for company contracts is one of the best ways of preventing non-compliance. Agreed, there are different types of contracts, and templates could not possibly be created for all of them. However, every company knows the nature of contracts it enters into from time to time. Templates should be created for these contracts for employees to be guided by when they are about to begin any transaction. If these templates and documents are properly updated and maintained, the legal department has time to focus on more important tasks, and may only have to approve the contract or make minor adjustments at the later stages of negotiations.

APPROVAL WORKFLOW

Approving a contract within the company is completed by a different set of persons from the drafters of the contract. The safe bet is to have different stages of approval before the contract is finally executed. Informing the next person responsible by emails, phone calls, texts, or conference calls, has been the normal practice by company personnel over the years. However, creating an approval workflow automates the process of approval from one stage to another, making review and finalizing contracts more seamless. An approval workflow should include the designated personnel per stage of approval, and deadlines for completing the process. Every contract and its stage in the approval workflow will then be easily monitored and updated if necessary.

MONITOR PERFORMANCE

This is the most practical and necessary aspect of ensuring contract compliance. Performing your obligations in a contract is the main purpose of entering into the agreement in the first place. Unfortunately, most companies do not closely follow the performance of executed contracts as they should. Conducting periodic check-ins can help in ensuring that all parties duly adhere to their part of the agreement.

Companies can make this process more effective by setting key performance indicators (KPIs) to review their vendors’ performance against a written agreement. They could demand that the vendors submit monthly or quarterly reports to be reviewed by assigned personnel within the company.

INTERNAL COMPLIANCE PROGRAMS

Finally, a company can only be as good as its members and staff, which is why conscious efforts should be made in educating and training its employees on the various types of compliance relevant to the company and their industry, and the need to ensure them at all times.

Employees must feel that they have an important stake in ensuring the success of the company and that ensuring compliance in every single activity is important to maintaining and building on the company’s market position.

Companies can design their preferred mode of compliance and make it a part of their organizational structure and process. The most important thing is that the employees receive proper training, and proper compliance is always ensured.