Contract hygiene – what is it and how can we maintain it?

Did you know that Brazilians have a habit of taking a dental kit wherever they go? I was recently in Brazil having lunch with my team, and was surprised to see them all going to the restroom to brush their teeth after eating. It turns out that pretty much every Brazilian brushes his or her teeth after every meal. I’ve travelled far and wide with my job, but I’ve never seen such dedication to dental hygiene anywhere in world.

While this is undoubtedly a very healthy practice, less can be said about the way organizations maintain their hygiene of its contracts.

So, how can we make our contracts healthier?

The consequences of poor contract health

“Why fix it if it’s not broken?” I hear you cry. But things do go wrong, and a basic, inexpensive hygiene check is a good way of keeping your contract health up-to-date.

It takes several weeks and months to draft and negotiate a contract. What if you did extremely well on the indemnity and liability clauses, but missed a key point around the scope? Even the most minor of spelling or punctuation mistakes can change the entire meaning of a sentence or clause, and most contract negotiators agree that too many unrelated boilerplate clauses and unnecessary protections around clauses can create confusion and lack of clarity, rendering basic contract hygiene even more critical.

I often see contracts that aren’t well-structured and even lack well-drafted clauses. At times, the scope isn’t clear and it’s obvious that the document hasn’t undergone a basic hygiene check.

Not hygiene checking a contract every time a new deal is signed has the potential to grow into an organizational habit that can affect and risk the entire contract portfolio.

Maintaining contract hygiene

While a good contract is never a substitute to a bad product or delivery, and similarly bad proposals can never be fully superseded by healthy or “hygienic” contracts, I’d like to share my experience of maintaining hygiene when drafting contracts:

• Follow KIS rule and keep it simple.
• Know your deal to ensure clear scope and goals.
• Identify and manage key risks.
• Leverage collaborative negotiations – think, negotiate, and sign.
• Design and draft contracts for users and governance, not for legal or litigation.
• Don’t accept unnecessary conditions by putting the entire organization at risk.
• Maintain flow and consistency in the document

It’s essential to follow these points while drafting and negotiating a contract. Apart from making a new sale, your contract is the only tool that can create revenue. In order to maintain contract hygiene, a contract manager should ensure that all the relevant inputs are well-drafted and incorporated into the document before sending for final signatures.

One way of ensuring that you’ve carried out contract hygiene would be to ask yourself: “Have you Brazil checked the contract?”

Capgemini helps Fortune 100 companies drive meaningful intelligence out of their thousands of contract documents. To learn how Capgemini can provide the correct contract management platform for your organization, please contact: mani.agarwal@capgemini.com

Click here to learn more about how Capgemini’s Contract Compliance & Optimization (CCO) solution provides a broader and deeper solution to your compliance, cost reduction and spend protection goals, from an often-overlooked area – the written contract.

Mani Agarwal  advises clients on commercial and contract management transformation initiatives. He helps organizations to transform their contract lifecycle and contracts portfolio by implementing the right machine learning/AI tools. He also uses his expertise in optimizing the performance of contracts to ensure maximum value through all contractual opportunities and avoid any revenue leakage. Mani is a qualified lawyer and prior to his role he worked in various large legal and technology companies managing their contracts and risk.