5 Steps To Improve Your Contract Enforcement Process

Individuals and entities form contractual relationships for all kinds of purposes. Whether purchasing a product or safeguarding confidential information, legal agreements are integral to finding common ground and avoiding disputes. However, just signing the dotted line doesn’t mean everything will play out as you desire. 

Enforcing the terms and conditions is just as important. From drafting appropriate terms to monitoring performance, all the involved parties must put in work every step of the way for desired outcomes. In today’s blog post, we’ll explore such contract enforcement efforts and their benefits that can help your business in the long run.

What is contract enforcement?

Contract enforcement is ensuring all the parties are honoring the terms of the agreement. Whether written or oral agreement, once the parties consent, they’re legally bound to the agreed-upon rights and responsibilities. 

Enforcing the terms, for example, in the case of a vendor agreement, guarantees that the vendor delivers the goods as specified, on time, and in good condition, and that the buyer pays the agreed-upon sum. Effective enforcement becomes more and more important as the stakes in the contract rise. Because of this, companies must take proactive measures to properly implement agreements.

What are the legal requirements for an enforceable contract?

All contracts aren’t created equal and certainly don’t hold the same standing before the law. So, just because there’s an agreement in place doesn’t mean it's legally enforceable. There are certain requirements businesses must keep in mind while forming contractual relationships to guarantee their validity. 

As we have discussed many times before, the six essential factors of an enforceable contract are offer, acceptance, awareness, consideration, capacity, and legality. A court may declare an agreement void if it determines that any of the components are missing. Enforcement is impossible, for example, if one of the parties is underage or if the terms are illegal. Thus, if one party fails to fulfill their obligations, the other party can’t seek legal remedies to enforce the contract.

Further, unconscionable terms, improper execution, or force majeure events can all affect the enforceability of a contractual agreement. It falls on the involved parties to create competent contracts that check all the requirements and have safeguards for extreme circumstances. 

Why is contract enforcement necessary?

All parties involved in a contract must carry out their responsibilities for it to succeed. Since most contractual relationships rely on reciprocal benefits, most parties carry out their obligations without prompt. And if they don’t, businesses can ensure they receive what they signed up for through contract enforcement. It allows them to take proactive steps to avoid future breaches and disputes.

When contracts enforce terms consistently, it builds trust between business partners and clients. This reliability can enhance long-term relationships and lead to repeat business. It also prevents financial, reputational, and operational losses that result from failing to perform contractual obligations. If a party doesn’t fulfill its end of the bargain, enforcement measures can help recover lost revenue. They can count on arbitration, mediation, or litigation for a systematic solution to non-performance. 

How do you improve the contract enforcement process?

Staying on top of terms and conditions throughout the contractual relationship requires serious commitment. The challenges multiply when businesses have countless active contracts and still depend on manual processes to carry out the lifecycle. Digital contracting is a one-stop solution to streamline the contract enforcement process. It lets companies keep an eye on rights, obligations, and output without contract managers having to step in all the time.

1. Clearly Outline Responsibilities

The efforts toward efficient enforcement must begin when parties start deliberating and drafting contracts. They must use clear and concise language to define the tasks and expectations in the contractual agreement. Plain language and less legal jargon can communicate the objectives better. When conveying responsibilities to parties, there should be no possibility of misinterpretation or ambiguity. 

Contracts are easier to uphold when everyone knows their share of the duties. Keeping it brief and coherent will put the significant provisions at the forefront. Businesses can utilize pre-written templates or previous agreements to find terms that work for them. It will expedite the approval procedure and facilitate a more seamless implementation.  

2. Establish Remedies & Consequences

Whether delivering services on time or keeping confidential information secure, contractual obligations benefit the parties who can successfully impose them. Businesses can do so by including clauses defining the legal remedies and repercussions for a breach. It sends a strong message that obligations must be met, and failure to do so will result in consequences.

They can include financial penalties, contract termination, or legal action as a course of action for non-performance. Implementing these repercussions consistently to all parties involved builds trust and sets a standard for accountability. When parties understand the consequences of failing to fulfill their duties, they are more likely to comply with the terms of the contract. Here are some effective legal remedies to consider when drafting contracts:

Monetary Damages: Businesses can specify the amount of compensation that the non-performing party must pay for failing to uphold the contract. It serves as a deterrent against breaches.

Specific Performance: In some cases, the aggrieved party may seek a court order compelling the non-performing party to fulfill their contractual obligations rather than simply seeking monetary damages.

Liquidated Damages: Include a clause that stipulates a predetermined amount of damages in the event of a breach. It helps both parties understand the financial implications of non-compliance.

3. Automate Obligations Tracking

Regular monitoring and audits are essential to ensure that both parties are adhering to the terms of the contract. Businesses can identify potential issues before they escalate into major disputes by keeping a close eye on performance. They can conduct regular contract reviews, depending on the complexity and duration of the contract.

Also, parties can automate obligation tracking to prevent significant provisions from slipping between the cracks. AI-powered contract management allows one to identify and extract relevant clauses without going through the legal agreement manually. It can include delivery timelines, quality checks, and payment schedules. They can set up timely reminders for these responsibilities to establish performance. 

4. Maintain Contract Records

For the duration of the relationship, parties must have access to contractual agreements to understand their rights and obligations. Managing contracts in email chains, shared drives, or folders can make it challenging to maintain comprehensive records. Thus, they may lose sight of amendments, deadlines, or obligations. 

Creating a centralized and digital system where all contract documents are easily accessible to relevant stakeholders can go a long way in the enforcement process. It eliminates confusion and misinterpretation of contract terms. Thus, all the parties can be held accountable for their obligations. In a disagreement, having detailed records can expedite resolution, saving time and resources.

5. Constantly Monitor KPIs

Organizations can ensure they are fulfilling their contractual obligations and maximizing performance by identifying and monitoring key performance indicators (KPIs). They can assess performance against agreed-upon metrics and recognize areas of success and those requiring improvement. This transparency fosters a culture of accountability and encourages all parties to meet their commitments.

The KPIs can include deliverables, quality requirements, payments, etc.  Constantly monitoring contract performance empowers businesses to foster better relationships with vendors, clients, and stakeholders. It creates a mutual understanding of expectations and outcomes. They can identify non-compliance or underperformance early on and take proactive measures to mitigate them.

Conclusion

As we have discussed, effective contract enforcement is paramount for maintaining strong relationships and ensuring results. That is why organizations are increasingly turning to contract management software to streamline the process of creating, tracking, and enforcing contracts. 

They automate primary processes to ensure that all parties comply with the terms of the contract. One such solution is Dock 365. Built on Microsoft 365, our platform brings the entire contract building process to one place. 

Centralized Repository: Empowers businesses to store all contracts in a single, easily accessible location within their pre-existing SharePoint environment. It reduces the risk of lost documents and ensures that everyone has access to the most current versions to establish performance.

Automated Alerts: Parties can set up notifications for key dates such as renewals, deadlines, and obligations, ensuring that nothing falls through the cracks. They can assign these tasks to relevant stakeholders to instill accountability and transparency in the process.

Version Control: Businesses require access to the latest version of contracts to effectively enforce terms. Dock 365 enables users to keep track of changes made to contracts, allowing for easy reference to previous versions and ensuring that everyone is on the same page.

AI Capabilities: Dock 365 allows stakeholders to quickly locate specific contracts or clauses using advanced AI and OCR functions, saving valuable time in the enforcement process. Thus, parties don’t have to go through contracts line by line to identify terms. They can identify, extract, and track obligations automatically.

Intelligent Integrations: Contract enforcement isn’t the sole responsibility of contact managers or legal teams. From sales to finance, everyone within the organization has a stake in the contract management process. Hence, Dock 365 seamlessly connects with other business tools (like CRM, ERP) to enhance data sharing and streamline workflows.