Keeping Track

CONSTRUCTION CONTRACTSContract management technology has helped firms mitigate risk.   

By Timothy Donaghy

Contracts are the cement and rebar that help form the foundation of any company. This is particularly true in the architecture, engineering and construction industries. In this arena, contracts not only serve as the agreed-upon terms that exist with suppliers, subcontractors and customers, but also stipulate how those terms will adhere to many of the laws that exist in this heavily regulated space. This has become such a specialized discipline that the American Society of Civil Engineers even offers a course dedicated to construction contract management.

This degree of regulation poses a significant compliance burden, as well as risk associated with being in breach of any of your contracts. In recent years, the advent of specialized contract management technology has begun to help many organizations mitigate their contracting risk. Below are a few examples of how automated contract management helps you address many of your construction contract compliance and risk challenges:

Contractual Deadlines/Milestones

Imagine that you have:

• An annual agreement with a subcontractor about to auto-renew that you do not want to renew.

• A pricing or payment schedule going into effect on a certain date or when certain project milestones are achieved.

In either case, it’s incumbent upon you to keep track of the date on which a decision needs to be made and action taken for those impending deadlines and contract terms. Now multiply these types of terms by the hundreds, thousands or tens of thousands of contracts that exist across your offices, and you begin to see the potential nightmare that exists when you try to keep track of them via spreadsheets, shared folders or calendar reminders.

Contract management technology allows you to centralize the terms, milestones and associated dates of all your contracts in a single place, and then easily set in-application and/or email alerts to notify you in advance of those dates so that an informed decision and can be made – and action taken – around those terms. This helps mitigate the legal and financial (and at times public relations/reputation) risk associated with missing those deadlines.

Changing Industry Regulations

Suppose an industry regulation, building code or OSHA standard goes into effect the first of next year requiring you to find all statements of work or change orders that will be in effect at that time, and that reference:

• “Maximum weight limit”

•  “OSHA 1926”

•  “United States Green Building Council”

By performing a simple keyword search of the content of all your contract records, as well as the content of all the supporting documents that you’ve attached to those records, you can surface all the affected agreements.  

Once found, you can make informed decisions and take appropriate actions required to remediate the change across your relationships with your suppliers, subcontractors and customers affected by the change. In so doing, you help mitigate the risk of being out of compliance with these regulations and their associated penalties.

Evolving Corporate Policies

Beyond the need to identify contracts affected by a pending change in industry regulations, you also may want to find all your current agreements that would be affected by a change in one of your corporate policies. Contract management technology can help you identify all your agreements that reference terms like:

• “Best effort”

• “Payment in advance”

• “Certificate of insurance”

Once again, by identifying, and therefore quantifying, all those agreements affected by the policy change you are considering, you can make a more informed decision as to if/when to implement the change, and the parties that will be affected by it. From there, a strategy can be devised for seamlessly implementing the change to minimize its impact on those relationships, and minimize the risk associated with damaging those relationships.

Non-Standard Language

But what about ensuring that your contracts fully comply when you draft, negotiate and execute them in the first place? Today’s technology helps manage the entire contract lifecycle by providing you with the ability to create and leverage contract clause and template libraries.  

These libraries contain pre-approved language, provided by your legal team, that cover the terms and conditions that are most frequently used in your contracts. They can even contain acceptable alternative language to be leveraged during the negotiation process. Simply select your standardized clauses for things like:

• Limitations of liability

• No assignment

• Applicable law

• Remedies

Then merge them with data that appears in your contract record, drop it into a contract template, and the software will automatically assemble and format the final document. This way even your non-legal staff can rest assured that they are producing a legally-sound agreement that meets all your compliance requirements. When you stick to standardized language, you significantly minimize your exposure to risk.

Build the Foundation, then Add Floors

As with the implementation of any automated system, it’s best to take a phased approach to replacing your manual contract management processes with specialized contract management technology.  Consider tackling your implementation in this order:

1. Importing or entering your electronic contract data into the software platform;

2. Adding records for the contacts and organizations associated with the contracts;

3. Attaching supporting electronic documents to contracts, organizations and contracts; and

4. Building your clause and template libraries.

By tackling the adoption of the technology in digestible chunks you’ll give yourself the best chance for successful adoption, which will quickly translate to minimized risk for your entire organization. 

Timothy Donaghy, vice president of technology at contract management software provider Contract Logix LLC, heads the development and maintenance of the company’s suite of products. Contract Logix enables legal, procurement, financial, sales and administrative professionals to manage their contracts efficiently while minimizing their legal and financial risk. Tim can be reached by email at [email protected]

 

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