In Shakespeare's play, Hamlet, Hamlet is mulling between life and death and asks a question - "To be or not to be?" which is followed by a beautiful soliloquy. Non-compliance is generally bad for business and to not be compliant can seriously affect the life of your business relationships and it's a slippery slope from there.

In this article we talk about how a digitised contract management platform like Riverus Umbrella can help you on your compliance journey.

What is contract compliance?

Compliance of a contract by its parties is fundamental to achieving the commercial goals with which the contract is made.

• Positive Covenants: Compliance of a contract is primarily achieved by parties taking positive steps in achieving milestones of a contract. These are called positive covenants.
• Negative Covenants: In addition, contracts sometimes contain stipulations about what the parties should not be doing while the contract is in force or even after that. These are called negative covenants.
• Relationship management, governance or regulatory requirement: Apart from positive and negative covenants, there are certain matters that parties usually make note of out of pure commercial / regulatory consideration that apply to a contracting party. While these matters may not be expressly reflected in each contract, they are still important for a variety of reasons like relationship management, governance or regulatory requirement. These too fall within contract compliance.

Let us take an example of a Services Contract to explain the compliance of obligation matrix better:

Party	Positive Obligation	Negative Obligation	General Obligation
Buyer	Deliver agreed quantity of goods on a particular date	Not to change manufacturing process without approval of the buyer	Initiate discussions for renewal of contract at least six months prior to the expiry of the current contract
Seller	Pay for the goods on the due date for payment	Do not divulge the rates given by the Seller to similar third-party buyers	Periodic diligence on the seller to make sure that seller continues its business

Some understanding of the volume of obligations

A supply contract will have many other positive/negative or general obligations. While the buyer and the seller will not keep track of each and every one of them, but still there could be as few as 10 obligations per supply contract which the parties would be regularly tracking.

For example, the buyer and the seller both will keep track of all the delivery dates, delivery quantities, payment amounts and milestones, testing protocols and escalation mechanism. On the other hand, a buyer may not proactively track a confidentiality related obligation under a contract but it will need to keep track of an obligation lets say which requires the seller to return, at the end of a contract term, any product specifications or formulae that may have been passed on by the buyer.

Now, even mid-size companies do not typically have just one or two contracts but several such contracts. Note all the purchase orders and service orders that are executed are also contracts and contain trackable obligations. Thus the whole obligation matrix for a company may easily run into 150 to 200 obligations across various contracts. In terms of people, requirement from as few as 5 to as many as 25 personnel of a mid size company may be involved in one way or the other in making sure that all necessary contract compliances are met on time.

The Gap in the Process & Its implication

Despite digitization, contract compliance has hardly moved beyond excel, and phones. Obligations are extracted in excel sheet manually, monitoring is done by contract managers operations managers or finance personnel. Reminders are sent by emails and phone and compliance is monitored through word of mouth.

Further, each contract compliance comprises of internal approvals. Consider an obligation to make payment for a consignment. This will typically require confirmation from the store that goods have been received in order, confirmation from the finance that all documents (like GST invoice) are in place, confirmation from finance that no amount is required to be adjusted and a final go ahead to make payment. Each of these approvals are either taken physically or over emails or sometimes over phone. However, it is highly likely that a proper audit trail for all these items may not be easily recoverable.

The fall out of manual task management has led to many problems of broken contract and disputes. Sometimes manual tracking hides the problems faced in implementing a contract from its senior management thereby losing the opportunity of curing a problem early on.

The Modern Best Practice

The modern best practice is to move the contract compliance and related task management online. A modern system of digital contract compliance needs to have four essential elements:

1. Delegate, schedule and assign a contractual obligation to organizational members.
2. Break a major contractual obligation into several small checklist items.
3. Set reminders of milestone integrated with email.
4. Monitor the progress digitally and a record task completion.

The above four items ensures that once contract obligations are identified and the required input like milestone, responsible personnel are inserted in a digital system, further tracking is in auto pilot mode.

Be compliant with Riverus Umbrella

What makes a contract management system like Riverus Umbrella truly distinct:

1. Riverus Umbrella automatically identifies all the important obligations, prohibitions from a contract making it easy for the operational personnel; and
2. It provides a digital mode of recording all discussions and approvals in respect of a specific compliance.

It is possible to customize Riverus Umbrella’s digital task management module with specific company specific templates for execution of various tasks, store all related documents like invoices, purchase orders, forms, emails etc as proof of compliance and finally create mini organization comprising responsible employees and outside consultants to smoothen compliance of contracts.

Riverus Umbrella can be extended even to contract counterparties and third parties like lenders who finance working capital for execution of contract orders. Thus, Umbrella can truly serve as a single source of truth for all contact related compliance in an organization.

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Write to us on hello@riverus.co if you would like a demo of Riverus Umbrella.

By Dipankar Bandyopadhyay