Cornell University’s law department defines breach of contract as “the violation of a contractual obligation. One may breach a contract by repudiating a promise, failing to perform a promise, or interfering with another party’s performance.”
Many people claim the quote, “Timing is everything”. This is true in business and contracts. First, money is the reason that breach of contract lawsuits occurs. And the reason that money is the reason is because of timing. One party fails to deliver their promise according to the time expectation of the other party, which leads to money lost. And sometimes, damages occur, resulting in additional lost money.
When one party accuses another party (or parties) of breach of contract, an easy strategy from the defendant(s) is to argue that they will fulfill their contractual obligations, but just have not yet done so. Therefore, the key ingredient to a breach of contract claim is communication. Besides a detailed contract filled with communication that is clear about time expectations and deliverables, all parties, which can be more than two, must communicate not only during the contract agreement but also during the contract management.
Contract agreement starts at the effective date and ends at the expiry date.
Contract management occurs before, during, and after a contract’s life. This is known as the contract life cycle. Contract management system software is the best way to communicate between all parties to a contract and is the best way to avoid breach on contract lawsuits. Just do what you say that you will do. Communicate to all other parties. Give all other parties a vehicle to communicate with you that is documented. These are vital reasons to use a contract management system.
Contract management involves input from all parties in a contract. There are simple contracts, like a purchase/sale, or a buy-sell, contract. For example, a wine distributor promises to deliver 20 dozen bottles of merlot to a liquor store every Monday, and the liquor store promises to pay every Tuesday. If you think that a contract management system software is unnecessary in this example, think again. What happens if the delivery truck breaks down? Are concessions made if the delivery is late, or if the delivery is a partial order? Can the wine distributor be legally dismissed from their contractual obligations if they sell their business? Can the liquor store delay payment if Monday is a federal holiday? One party might have a different answer than the other if there is no contract management system software used to communicate before, during, and after a contract.
There are more complex contracts, like a contingent contract, which obligates one or more parties if another event, or series of events, occurs. For example, a contract to buy a parcel of land by a commercial developer is contingent on a zoning change approval by the city. What happens if zoning is granted for a partial plot of land but not the entire parcel? Is the selling price of the partial parcel equal to a percentage of the asking price for the entire parcel, or are some acres of the entire plot more valuable than others? If the city agrees to the zoning but delays the installation of utilities and power lines, what happens? Again, one party might have a different answer to these questions, likely based upon cost and profit of labor and resources. Using a contract management system software is a way to reduce the number of problems that might occur, and give solutions during contract negotiation and execution.
Larger contracts have more people involved in the process. With more people involved, communication and documentation become more important throughout the contract life cycle.
Business operations occur because of money. Breach of contract lawsuits occur because of money. Lawsuits for breach of contract cost money. Lawyers cost money. Processing lawsuits cost money. Fixing your reputation costs money. Wasting time costs money. Going to court costs money. Payment of damages costs money.
The solution is a contract management system. Yes, purchasing a contract management software system will cost money, but the cost is less than the cost of lawyers for breach of contract lawsuits, and less than the cost to repair your reputation in the Better Business Bureau, in your community, and nationally or internationally, and likely less than the damages paid if a judge rules in favor of the other party in a breach of contract lawsuit.
Contract life cycle management occurs with a CMS, a.k.a. contract management software. Contract management software allows all parties in a contract to see all documents within a portal. The portal houses data such as the contract itself, but it also gives the capability that parties can redline, edit, and add to, the contract as the negotiation process of the contract life cycle unfolds. Also, a contract management system keeps communication history of all parties, and all key players from each party. As an example, if the other party’s CFO needs to see proof of insurance from your company before they sign and execute a contract, and if your time is busy with other duties, you can send a message within your contract management software to another person at your company to upload the business liability insurance certificate into CMS. This document is then stored in your contract management software, and it can be referenced at any time. Also, this document needed in one of your contracts can be shared with other contracts, as needed, without repeating the process to ask your insurance department to re-upload insurance proof. This saves time. Saving time saves money.
Another capability of contract management software is the use of contract templates. Different departments in your organization will use different contracts. There is not enough time in a day for one person or your CEO to review every contract from every department to make sure they are created in ways to protect your firm. This is one reason that using contract templates is important. Another is that personnel will change over time and keeping contracts consistent with use of templates keeps breach of contract lawsuits to a minimum. For example, your organization has national sales managed by time zones, or region. Promising to deliver pressurized products like aerosol spray bottles will have different transportation and storage requirements at sea level in Florida than at 5,000 feet altitude in Denver or at 8,000 feet altitude in Aspen. Or logistics of refrigerated products requires a different set of criteria in Miami in mid-summer than in Canada mid-summer.
Another example are employment contracts. An HR employee has some parts of their employment contract mirror an employee working in sales or legal. An intern has other unique contract content than a full-time employee with health insurance, disability, 401k, etc. Contracts are different because performance metrics for each are different. Using the contract templates setup in your contract management system will allow a complete contract for each department employee to be created in minutes instead of days or weeks.
Contract management software is built with an organizing system. Contracts from the same party are grouped together. Also, contracts pertaining to the same project can be grouped together. For example, if your company assembles jets, your contract management system will organize and list contracts by various components of a jet, i.e., engine, fuselage, seat harnesses, windows, etc. Furthermore, if a vendor provides multiple components, such as providing both the seats and the armrests, then these contracts will be grouped by party, and organized with an alphanumeric naming convention, i.e., CN2013, CN2013-2, etc.
Company personnel come and go, which is another reason why a contract management system is critical to the success of your organization. The contract process is as follows. First, one party desires to buy something from another party. Next, verbal communication occurs that defines what each party will give to the other party. For example, a homebuyer gives money to a house seller who gives the house to the homebuyer. Next, all details of the transaction are created in written form, called a contract. Next, one party gives the contract to the other party for review and signatures. If the party that receives the contract agrees, the contract is signed. If the party that receives the contract disagrees with a part of the contract, then redlining or negotiating or concessions may occur. Another possibility is that the house for sale is no longer for sale. This is another example of a benefit of a contract management system. Any party in a contract can do redlining or contract edits. These changes are recorded in the CMS, which can be reviewed later.
What if the main contact person of the buying party resigns their position? Or what if the main contact person of the selling party goes on vacation, requiring an assistant manager to make decisions in the development of the contract?
The contract life cycle continues even as personnel changes within an organization change. There is a workflow monitoring capability in contract management software. Workflows break down a contract into sub-parts. Each sub-part, or subsection, called a “workflow stage”, includes a goal to accomplish, steps to reach the goal, key players who will make the decisions and approve the subsection, and notes communicated between parties. Furthermore, a complete history of all actions, notes, notifications, etc. are stored in a CMS, accessible to anyone with permission.
Stay in control of your organization’s contracts. Contract management systems have settings which give permissions to individuals or groups of people who are relevant to a contract. Privacy is important at every part of the contract life cycle. However, privacy of contract terms prior to public announcements is vital to the relevance of a contract that is worth tens or hundreds of millions of dollars. Granting permission on a contract management system to only the people who should be a part of a contract is better than using a Dropbox, or Google Drive, or emails, or other method. Contract management systems are setup in a way that keeps private information private. Also, a CMS can end access of contract data to an individual person or a group of people at any time. It is common for each party in a contract to have a second or third set of eyes to review and/or approve workflow stages.
Contracts will have verbiage to describe penalties for divulging private information within the contract. This is a way for a breach of contract lawsuit to be initiated. Contract management systems protect data, which saves money.
Contract management systems have other capabilities too. Expired contracts can be regenerated. Cancelled contracts can be reactivated. Terminated contracts can be renewed. These are all capabilities that are built into contract management software. Performance expectations of the other party can reduce breach of contract lawsuits simply by continuing to do business with the other parties in your firm’s contracts.
Notifications can be sent to all parties automatically, taking human error out of the equation. Notifications are automatic. When a contract is set to expire, or another contract has a workflow stage (subsection of the contract) that will expire soon, an automatic notification or email reminder is sent to all parties. This is another way to keep the lines of communication open. And again, notifications sent will be included in the history statistics of each contract in a contract management system.
Contract management software utilizes many tactics to preserve communication during a contract life cycle to be transparent. Transparency builds trust. Lies breakdown trust.
Will you be a part of a breach of contract lawsuit? If so, will it be because the other party in a contract that you participated did not have a contract management system? Or will it be because your organization is not using a contract management system? Or will it be because your organization is failing to setup workflow stages properly?
Remember that workflow stages are designed to keep communication transparent, to give all parties the opportunity to redline or edit the contract before it is signed and executed, and to give all parties the chance to know exactly the progress of the contract’s development.
Train your organization on how to use your contract management system so that fewer breach of contract lawsuits take place. Assign responsibility and ownership of each workflow stage to personnel that is logical. For example, assign contract template choice decision to be chosen by a sales rep, but approved by the regional sales manager. Then, have the required parts of the contract assembled by the appropriate personnel at your organization. Have your office manager approve and certify that business liability insurance certificates are up to date. Have your CFO approve payment terms of the contract. Have your CEO approve contract contents before and after the legal team has approved the contract. Assign an oversight committee to review all contracts formed at your organization before they are sent to the other parties for signatures and execution.