Ever heard someone say, “Now that the contract is signed, we can put it in a drawer and never look at it again.”? I understand this thinking – if it means the business terms are so clear, and the relationship is so good, that they don’t need to obsess over contractual minutia. In other words, compliance is sort of on auto-pilot. What I’m opposed to, however, is not knowing, or directly ignoring, the requirements of your contracts.
Businesses ignore their contracts for a variety of reasons, including:
• Things are going so well from a business standpoint that they don’t care what the contract says.
• Conversely, things are so bad that they don’t care.
• They’re too busy, or compliance is too much of a hassle.
• Or, finally, the contract simply doesn’t accurately state their business arrangement.
None of these are good reasons to ignore your contracts. Non-compliance means risk; risk means exposure; and exposure threatens the success (and sometimes survival) of your business.
Here are a few suggestions to ensure contract compliance:
• Keep your contracts as simple as possible.
• Try to match your contract terms with your general business practices and processes.
• Seek uniformity in your contracts (and make sure your lawyers do this when they draft them) on both business terms and more standard “boilerplate”terms.
• Have the same person negotiate the same types of contracts.
• Assign a specific person to be ultimately responsible for performance, oversight and compliance for each contract – preferably the person who negotiated it or someone who is directly involved in performance.
• Prepare executive summaries of the material terms, and review them periodically.
• Make sure those directly involved in the performance each contract know its terms.
• And finally, don’t enter into contracts that don’t accurately state your business agreement, and amend them if circumstances change so that they no longer do so.
Think of it this way – if the deal was important enough to enter into a contract, then it’s important enough to make sure that contract is accurate and to comply with it.