Set alarms to review these three key issues in longer-term contracts
One of the great things about a contract management solution like Contract Assistant is the ability to set alarms based on key dates. It may sound simple, but an alarm can cut risk within a company by ensuring that contracts aren’t just filed away and forgotten.
Without a periodic review of contracts, your company may not be getting as much from that contract as it deserves. In Contract Assistant, there’s a good way to ensure that doesn’t happen: schedule an interim contract review using the alarm setting for a “Review By” date. In Contract Assistant Enterprise Edition, users can even have alarms delivered to users or groups via email.
Not to be confused with “Expiration” date alarm – the “Review By” is meant to be a signal/reminder for a periodic review (monthly, mid-contract, quarterly, etc.).
One of the main concerns (but certainly not the only) in any contract is to ensure that pricing/cost is in line with expectations. This is especially so with longer contracts. Longer-term contracts pose a particular risk when it comes to complacency. It may be easy to forget to review a contract if no problems are encountered in year one of a two-year contract.
Here are three good price-related issues that would be good to review in longer-term contracts:
Year-over-year pricing: Is a contract longer than a year showing any changes in pricing? It’s not unusual for small changes in costs to be reflected in invoices, even when they are inadvertent. It’s a good idea to check on pricing – especially midway through a more-than-1-year contract. Compare year-on-year invoices for the same period during a review to find out.
Cost-of-Living-Allowance: This is an unusual though not necessarily rare requirement of some outsourcing contracts when staff and talent need to be retained periodically offsite, in remote locations – or just to man a remote branch. COLA is of course a hazard, but it should be monitored in the interim to ensure it meets reasonable ranges already agreed to.
Variance Pricing: For any company contracting for services or products that contain variance pricing, this is a must-watch alarm. Variance pricing refers to a retroactive rate adjustment based on resources used (compared to an estimate of resources planned in a contract). Why would anyone agree to this? Consider any contract involving a custom built or manufactured piece. Prices of components are subject to change – and can be quite volatile depending on the industry. For any contract containing variance pricing, you’ll want to set multiple “Review By” alarms to ensure someone can look over any changes to costs associated with variance pricing.
As with all elements of contract management solutions, taking full advantage of the software’s capabilities will yield good results. Using “Review By” settings for these tricky price-sensitive features of contracts in Contract Assistant will go a long way to ensure your company reduces risk.
Want to read more about alarms? Check out our post Setting alerts in Contract Assistant: Top uses and tips
[Editor’s note: Credit for identify these three pricing sensitive issues in contracts goes to David Mitchel, Managing Consultant at Alsbridge Inc. in his post “5 ‘Gotchas’ When Negotiating an Outsourcing Contract”]