Contract negotiation mistakes can be costly for both business owners and their clients. Whether you’re negotiating a contract as an individual or on behalf of your company, it’s important to know the ins and outs of how to make sure compliance with contractual obligations are being upheld both when you write the contract and once it’s in place. If you make these mistakes, you may find yourself facing legal fees that could have been avoided through proactive measures.
In this blog post, we will discuss some of the best contract negotiation practices that will help you ensure compliance and how AI contract review tools can help.
What Is Contract Compliance?
Contract compliance is a series of checks and procedures businesses use to ensure that they conform with regulations and the terms they’re bound by. It’s one of the most important practices for legal, financial, and business professionals. The standards for contract compliance are set by all individuals who want to ensure that the contract process is fair and secure for all parties, regardless of the power dynamic.
To ensure contract compliance, it is necessary to know all applicable rules or risks involved in the contract negotiation process. The following is an overview of tips that may help you maintain your contract compliance.
- Choose an experienced lawyer who has worked with your industry before;
- Make sure you have enough time to review the contract thoroughly before signing;
- Check any unfamiliar words or acronyms with your lawyer before signing;
- Have your lawyer run the final document through a contract review software like BlackBoiler;
- Make sure there are no typos in the final document.
Why is Contract Compliance Important?
A good contract management strategy must include contract compliance. Ensuring contract compliance is a very difficult but important task. But doing so will go a long way in preserving your company’s profits and staying in the good graces of your customers, and most importantly, reducing risk.
There are many things you should consider when determining what form of contract compliance you want to implement, including how much time it takes on the individual level, how far down in the organizational ladder it must be implemented, and the costs associated with it.
Some types of standards for compliance that can be put into place include:
- Specific contractual provisions that detail out each party’s rights and obligations during the course of the agreement.
- Establishing reporting processes to monitor performance against goals or milestones set by both parties at different points throughout the agreement.
- Including penalties if deadlines or other commitments are not met by either party as outlined in the contract.
- Defining specific events where one party has grounds to terminate the agreement (in case one party breaches).
- Mandating that certain information needs to be disclosed before entering into an agreement.
- Making sure all relevant terms are clear and easy to understand for all parties involved.
- Ensuring that one party cannot unilaterally change the agreed-upon terms without consent from the other.
What type of contract compliance practices should I choose? It depends on what you value most! The first three considerations listed above may have more weight for some companies than others, depending on their culture and internal policies.
Risk Management Tips
In contract negotiations, a key objective is to make sure that both parties adhere to the agreed-upon terms and work together smoothly over the course of the project. In order to make this happen, companies should consider implementing the following contractual safeguards.
First, an important measure is to include an intellectual property provision in the agreement. Intellectual property rights can be difficult or impossible to protect once they are disclosed or published.
For example, even if you have taken steps to protect your intellectual property (e.g., copyrighting it), someone else may still take it and use it without permission—or worse yet, claim ownership over it altogether. Having this clause in place will help protect you from losing control of your company’s intellectual property.
Other clauses that could improve compliance include indemnification clauses, which specify who will pay for losses incurred during the course of the project; exclusivity clauses, which ensure that other projects are not being undertaken by either party at the same time; and liquidated damages provisions, which provide a set amount to be paid as compensation for breaches.
An Overview of Best Practices
It’s important to know what you are doing. Consult an attorney and your company’s compliance team before negotiating contracts. You may want to hire someone who has extensive experience in contract negotiations or the subject matter of the agreement you are negotiating.
Before negotiating, consult with outside counsel, a trusted legal advisor, or a compliance expert on how best to negotiate, what language not to use and what documents need to be attached and presented during the negotiation process.
Read over all drafts that have been negotiated as part of the contracting process to ensure compliance, but keep in mind this is usually done by parties after finalization. The only time it should be done prior is if there is something that would make it difficult to get final approval from all parties involved because it would require re-negotiating the whole contract.
Document and review every contract, with associated deliverables, milestones, and timelines.
It is important that you always document your contracts and associated deliverables, milestones, and timelines. This will not only help you have a better understanding of the obligations of each party in the contract, but it will also help you go back if there are any issues in the future.
You should also make sure that you’re abiding by every law when you negotiate a contract. If there’s anything about the agreement that is unclear or confusing, don’t hesitate to ask questions before signing on the dotted line.
Finally, keep all records of negotiation discussions in case they need to be referenced later on.
Conduct Ongoing Internal Audits
To minimize the risks of non-compliance, conduct ongoing internal audits throughout the contract negotiation process. This way, if a project goes south, you can act quickly and revert back to a previous agreement, minimizing the damage and cost that could occur. The idea is to make sure that your company is protected from any mishaps or unfair dealings.
Automate the Process
Every business has a unique set of needs and desires, so negotiating a contract can be one of the most challenging aspects of starting a new business. And while compliance is important, it is not always easy to achieve. This is where AI contract review tools like BlackBoiler can help.
Using artificial intelligence, BlackBoiler ensures that every aspect of your contract meets your desired terms. With automated features such as human-language comprehension, contextual translation, word suggestions, and multi-lingual editing tools, there’s no need to waste time or resources on manual labor.
Rather than wasting hours trying to interpret legal jargon and risk missing key points, you can rest assured that the provisions in your contract are legally sound and correct.
Request a demo today to learn more about how our AI contract review tools can make contract negotiations easier!