Let Us Guide You Through Your InfoSec & Compliance Journey.
Learn how to use the Compyl Platform.
Watch all Security Session Episodes
Real-world stories on how we help our customers.
Enterprises create hundreds or thousands of contracts every year, including procurement, sales, and service agreements. In the SaaS and IaaS markets alone, the annual value of contracts exceeds $14 billion. Top B2B brands such as Honeywell and C.H. Robison generate over $20 billion in revenue each year. Effective contract compliance is a vital investment with so much money on the line. What is contract compliance, and how does it help businesses of every size?
In broad terms, contract compliance involves ensuring your organization follows through on the terms of its business agreements. Compliance is technically one stage of the contract management process. However, virtually every part of a contract’s creation and execution has some relationship to compliance.
Part of compliance means fulfilling contract stipulations, such as:
Your organization also needs to verify that other parties carry out their obligations, such as suppliers and vendors, through regular audits, performance reviews, and compliance checks.
The other side of contract compliance requires your organization to meet legal and regulatory requirements around contract creation. In the United States, businesses must navigate the Uniform Commercial Code, state contract laws, and consumer protection laws when creating contracts. Employment agreements must comply with over 100 federal laws, such as the Fair Labor Standards Act, Employee Retirement Income Security Act, and the Worker Adjustment and Retraining Notification Act.
Whether you lead a Global 2000 enterprise or own a small business, contract compliance has a significant impact on your organization’s reputation, customer relationship, profitability, and continued operations.
At the very least, breaking contract terms undermines trust and usually leads to lost clients. If this happens too often, it can trigger a domino effect where other customers, leads, and industry contacts refuse to work with you.
Noncompliance can have even greater legal consequences. Depending on the type of agreement, your business may be liable for hefty state and federal fines, penalties for contract breaches, or devastating lawsuits.
To measure contract compliance, your business must look at performance metrics for the main terms of the agreement. The key performance indicators you track depend on the contract’s deliverables (i.e., services or products). KPIs for contract compliance usually require quantitative measurements, but they can also be based on successfully passing audit checks.
Quality metrics often focus on successfully meeting the client’s quality standards and agreed-upon product specifications, such as dimensional tolerances. Contracts usually follow recognized international standards for manufacturing quality, especially ISO 9001. Some organizations set specific performance targets based on statistical process control, total quality management, or defect rate.
In many industries, on-time order fulfillment is critical for smooth operations and profitability. For example, if a raw materials supplier or logistics provider fails to deliver the necessary goods on time, manufacturers may have to halt production, resulting in millions of dollars in downtime losses. Nearly every B2B company, from general contractors to IT teams, has contractual deadlines to meet. Contract compliance for punctuality focuses on achieving targets for individual stages, delivery schedules, and completed projects.
Contracts that involve consulting or professional services often set soft and hard financial targets. Reaching soft targets can result in bonuses or higher payouts. Hard targets are minimum requirements for successful contract completion. Examples include return on investment, efficiency, cost reductions, leads generated, and sales targets.
Last but not least, responsiveness is a factor in many modern contracts. Responsiveness refers to maintaining communication at regular intervals per the terms of the contract.
Some projects require regular reports, quality inspections, audits, or stage-completion walkthroughs. There may be contractual stipulations for periodic video chats, emails, client meetings, or in-person communications. Compliance metrics look at if and how often your company meets these reporting obligations.
The complexity of contract agreements means that legal professionals — usually in-house lawyers — must get involved. Since attorneys earn annual salaries of over $100,000 on average, it’s important to streamline the contract management process. Contract compliance platforms help legal teams implement automatic workflows for report generation, KPI tracking, and compliance metrics for deliverables. Many SaaS solutions also simplify contract creation.
The steps required to comply with contracts also benefit your overall organization. For example, meeting regulatory and quality standards can help your organization stand out as an industry leader, winning valuable clients and potentially qualifying for lucrative government contracts. Contract compliance generally means following Good Manufacturing Practice and other industry best practices.
Governmental and industry regulations frequently change, from CMMC cybersecurity guidelines for the DoD supply chain to PCI DSS requirements for SaaS vendors. Fulfilling the terms of contracts may include adapting to these changes. Platforms like Compyl stay up to date with framework version updates so your compliance tracking is accurate.
Contract terms can also change, both upon renewal and when both parties agree to it. Some compliance mistakes happen because certain employees or departments are using an outdated version of the contract. In one survey, 9 out of 10 professionals had problems even locating the correct contract.
Compyl helps you avoid this issue by centralizing contract and document storage. That way, all teams can follow the latest version seamlessly.
One reason why contracts lose almost 10% of their value is that only 30% of legal teams use preapproved templates or contracting playbooks. Standardizing contracts and making smaller case-by-case adjustments is an excellent way to lower the costs of contract management and increase your compliance rates.
Regular audits are a must for consistent compliance. Put simply, it’s better to catch minor deviations while they’re small instead of waiting for them to turn into major breaches of contract. Audits help you locate problems with compliance and create solutions that are efficient and practical.
Contract compliance is what your business makes of it. With the right automation tools, centralized document storage, and state-of-the-art compliance tracking features, ensuring quality is easier than ever. Request a demo for Compyl today.
