What Is Contract Compliance? A Comprehensive Guide

Contract compliance is the act of following the terms, norms, and procedures outlined in a contract. When your organization maintains contract compliance, you’re less likely to receive allegations that you’ve breached the terms and conditions of the binding contract.

This article explains what you need to know about contract compliance to help protect your company’s interests. We explore why contract compliance is important, the challenges organizations face with contract compliance, the responsibilities of a contract compliance manager, and some best practices for compliance.

• Why is contract compliance important?
• Who is responsible for contract compliance?
• Best practices for contract compliance
• 5 contract management software options to consider

Why is contract compliance important?

Contract compliance helps ensure that all parties fulfill their legal obligations under the negotiated agreements while fostering trust and transparency between the contracting entities.

It also helps businesses grow with mutual positive relationships with customers and suppliers.

Ensuring your business complies with its contractual obligations also reduces your exposure to costly and time-consuming breach-of-contract lawsuits for noncompliance.

Contract disputes can damage business relationships and cause delays in business activity and performance. It can also result in fines, penalties, liquidated damages, and even injunctive relief, where a court compels a party to act or refrain from acting in a certain way.

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Challenges of contract compliance

Maintaining contract compliance can be challenging for any organization. Examples of the difficulties in maintaining contract compliance include:  

• Identifying all applicable laws and regulations related to contractual obligations. Most contractual relationships come with legal requirements imposed by federal, state, industry-specific, and even international law. For example, if your company hires a contract worker for a limited engagement, you must follow the laws that distinguish the role of a contract worker from an employee. Additionally, laws can change during a contract’s life span.
• Managing each contract’s terms and obligations. Ensuring your company meets all its contractual obligations can pose numerous challenges. Monitoring and fulfilling a contract’s myriad terms and conditions, especially in instances of multiple parties to an agreement, can require expert oversight.
• Ensuring consistent contract performance. When business environments change—for example, due to a change in the availability of resources or a decline in market conditions—ensuring contract performance can be challenging. Parties may disagree on how to interpret certain terms and conditions and whether the parties are meeting their performance obligations. These are all issues a contract administrator must be able to address and resolve in the best interest of their organization and stakeholders.
• Facilitating communication and coordination. It’s impossible to manage contracts in a meaningful way unless everyone involved understands how and when to fulfill their contractual obligations. Creating an environment for coordinating efforts and facilitating communication is key.
• Avoiding contractual disputes when possible.  Both parties in a contract should take all reasonable measures to avoid any acts of omission or commission that could give rise to time-consuming and costly contractual disputes. When problems happen, knowing how to address them before they become full-blown disputes is key to a sound compliance program.
• Establishing compliance performance metrics. Adhering to performance metrics helps ensure your organization remains in contract compliance. To be meaningful, your company’s contract compliance performance metrics should track progress against contract objectives in a way that’s relevant, specific, and measurable.

Who is responsible for contract compliance?

All parties who enter into a contractual relationship bear responsibility for adhering to the terms and conditions outlined in the agreement.

Many companies find that hiring a contract manager to maintain oversight over contract compliance—including ensuring all contracts are negotiated, executed, fulfilled, and, where applicable, renewed—can help meet business objectives.

Many businesses also use contract management software. We provide some information on the efficacy of these types of compliance systems with examples below.

Best practices for contract compliance

While establishing or enhancing your company’s contract compliance and contract management strategy can be challenging, following these best practices can help ensure your program serves the best interest of all contract stakeholders.

• Be clear about your expectations. Establishing expectations for contract compliance and making sure everyone involved understands the potential consequences of noncompliance is a necessary first step. It’s best to seek legal guidance to avoid potentially costly mistakes.
• Establish clear policies and procedures and put them in writing. The most robust contract compliance programs are based on steps for maintaining compliance, including how to create new contract templates, the timing for contract renewals, and when and how to monitor and account for subcontractors.
• Implement a robust contract management system. This can act as a central repository for contractual documents, obligations and deadlines, and communication and reporting.
• Provide regular and ongoing training and education. Provide ongoing training and education for everyone involved in your company’s compliance standards for creating, executing, or administering contracts. Those responsible for contract compliance should understand the specific terms, conditions, and obligations under each contract and adhere to the highest standards of ethics and lawful execution.  
• Conduct regular audits to reduce exposure. The only meaningful way to determine whether your company’s contract compliance program works is to conduct regular contract compliance audits. Regular audits will not only help identify areas of noncompliance, but they can also allow your business’s contract administration to take remedial and affirmative action—such as asking a contract partner for an extension to meet certain terms and conditions—before your company faces legal exposure.
• Establish a contingency plan before you need it. Don’t wait until you find a problem to think about how to address potential issues. Consider what issues could happen, their potential risks, and how your organization can address them to eliminate or reduce risk and exposure.

5 contract management software options to consider

Choosing the right contract management software for your business can help streamline and automate contract management. This, in turn, can help your compliance specialist produce the outcomes your organization needs to keep its business moving forward without unnecessary interruptions or additional costs.

While contract management and contract life cycle management sounds similar, they are a bit different. You can think of contract life cycle management as overseeing a contract through each of its stages—creation to termination—and contract management as the set of actions done during each stage.

To find the right contract management software for your business, we provide an overview of the key features and some pros and cons of five contract management software products.

1. ContractWorks
2. Agiloft
3. Concord
4. Coupa Contract Lifecycle Management
5. Ironclad

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1. ContractWorks

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ContractWorks promises its customers simple and scalable software that’s easy to get up and running. Features include an activity dashboard, activity tracking, and alerts or notifications.

The ContractWorks product also offers customizable fields, reports, and templates. The software is geared toward legal, finance, and HR users and targets the health care, technology, manufacturing, nonprofit, and government sectors.

Pros:

• Easy to implement, especially when it comes to uploading documents
• Responsive customer support
• Client-friendly
• Can tag items for alerts
  

Cons:

• Contact management is cumbersome
• Have to purchase additional digital signatures as an add-on
• Problems with UI translating to other devices, such as tablets and smartphones

Pricing:

• The standard plan is $8,400 a year and includes unlimited users, 2,500 documents, and five electronic signature licenses
• The professional plan is $10,800 a year and includes unlimited users, 10,000 documents, and 10 electronic signature licenses.
• The premium plan is $24,000 a year and includes all the professional plan features plus drafting, redlining, and workflows for companies looking to scale to a full contract lifecycle management (CLM).

2. Agiloft

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Agiloft’s contract management software is fully customizable for buy- and sell-side contract management. You get a contract repository and templates, a clause library, flexible approval workflows, built-in AI, security and compliance safeguards, automated notifications, and integration with existing systems.

The software serves large and small companies, government agencies, and academic institutions. They also have partners on six continents.

The software is geared toward legal, procurement, sales, sourcing and supplier information management, and enterprise contract management. The company targets users in the health care, pharma and biotech, education, and financial services sectors for contract life cycle management

Pros:

• Easy to customize and use because everything is point-and-click
• Robust electronic signature management feature
• Training videos available for new users
• Offers a complete satisfaction guarantee

Cons:

• Can be confusing to people new to business flow
• Can be difficult to maneuver from section to section
• Users experience occasional errors when merging operations

Pricing:

• Have to contact company for prices
• The Essentials level provides basic workflows and automation and 5GB data storage per license
• The Advanced level includes the addition of clause and obligation tracking, an AI platform add-on, and 8GB of data storage per license
• The Premium level includes everything in the Essentials and Advanced levels plus an integration hub and 12GB of storage up to a max of 12TB.

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3. Concord

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Concord’s contract management platform offers approval process control, archiving and retention options, audit trail and audit management, collaboration tools, and a configurable workflow.

Its typical customers include businesses of all sizes, nonprofits, and public administration entities. It provides solutions for legal, HR, sales, and procurement business functions.

‍Pros:

• User training and onboarding assistance
• Allows for customized approval workflows
• Provides a mechanism to edit and review the history of pending contracts
• Search function

Cons:

• Doesn’t support documentation of contract execution that occurs outside the platform
• Word and PDF documents don’t import correctly, losing formatting features
• E-signature solutions lack flexibility

Pricing:

• The Standard plan is $204 per user per year and includes unlimited e-signatures and documents.
• The Pro plan is $588 per user per year and offers approval workflows, customized reports, and integrations with Salesforce, Google Drive, Box, Dropbox, and Zapier.
• The Enterprise plan pricing requires asking for a quote and includes all the features of the Standard and Pro plans plus a clause library, custom branding, subsidiary management, and single-sign-on (SSO) authentication.

4. Coupa Contract Lifecycle Management

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Coupa’s contract lifecycle management software serves a wide range of industries, including automotive, banking and investment, education, health care, manufacturing, and telecommunications.

Along with contract tracking and contract audits, Coupa features include data visualization, demand forecasting, purchase order and requisition management, and supply chain management.

Pros:

• In-depth reports and analytics
• Easy to navigate for experienced users
• Ease of historical tracking

Cons:

• Complex systems integrations stump some users
• Search function is cumbersome and requires the use of terms that aren’t intuitive
• Some find the UI confusing and have difficulty navigating through the different software features

Pricing: Not available; must contact the company for a quote

5. Ironclad

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Ironclad offers users a contract management and workflow automation solution that includes workflow and auditing features, integration with customer relationship management (CRM) software, searchable records, e-signature integration, approval reminders, and notifications.

It’s geared toward an organization’s in-house legal, HR, sales, procurement, finance, and marketing departments.

Pros:

• Effective support enhanced by the robust self-service option
• Ability to save redlined changes as you work
• User- and supplier-friendly tracking system

Cons:

• Doesn’t allow for visibility between team members
• Challenging learning curve for those without a legal contracts background
• Not easy to change workflow templates

Pricing: Not available; must request a personalized quote

Stay in compliance with Upwork

When it comes to establishing and maintaining contract compliance, you have little room for error. The benefits of being a trusted partner to your contractual partners and stakeholders are immeasurable. At the same time, failure to maintain compliance can result in legal exposure, costly litigation, and damage to your company’s reputation.

One of the best ways to ensure your contract compliance program meets all the necessary legal and ethical requirements is to find an experienced and trustworthy compliance specialist through Upwork.

Did you find a freelancer outside Upwork? Consider using Direct Contracts to review their contract and accept the terms. You don’t even need an account.

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Upwork is not affiliated with and does not sponsor or endorse any of the tools or services discussed in this article. These tools and services are provided only as potential options, and each reader and company should take the time needed to adequately analyze and determine the tools or services that would best fit their specific needs and situation. Prices are current at the time of writing and may change over time based on each service’s offerings.

Upwork does not provide legal advice. Each reader and company should take the time needed to adequately analyze the laws that apply to their business endeavor.