Developing a stronger working knowledge of what exactly is in your contract portfolio can help mitigate risk and eliminate unnecessary expenses, new research from Seal Software has shown. To hammer home the point, the company has compiled a real-life 'Top 10' list of hazards uncovered within contracts held by Seal clients in the Fortune 500, and it is the stuff of in-house nightmares.
Unnecessary costs
According to Seal, failing to conduct thorough contract reviews can lead to companies wasting money on assets and capabilities that they no longer require, especially after restructures or M&A activity. In one instance, a leading energy company and Seal client was found to be auto-renewing a lease on a property it no longer needed more than three years after concluding a takeover, at a cost to the company of $400,000 per year.
Missed opportunities
In another case, an IT company was found by Seal to be failing to enforce Retail Price Index increases for which it had fought tooth-and-nail during the negotiation phase because the company didn't know which contracts the increases were housed in. The result was an annual loss of revenue for the company between four and eight per cent.
Risk exposure and management
When contract management is lacking, companies are hindered in both anticipating future risks and dealing with crises once the arise. One unnamed Seal client, a 'software giant', discovered that it had inherited an unlimited liability provision only after finalising its acquisition of a $1.5 million start-up company. In another disaster scenario, a telecommunications company which had acquired a major competitor still had not idea of the liabilities contained within the 500,000 contracts it had acquired as part of the takeover.
'At the heart of it all'
According to Seal Software co-founder and chief executive Ulf Zetterberg, the company's 'Top 10' horror stories demonstrate just some of the many ways businesses of all sizes, and their lawyers, will fail to catch the multitude of risks, costs and opportunities buried within the contract portfolio unless they inject some sophistication into their contract management systems. Contracts, he argues, sit at the heart of the business and must be treated as such. 'The potential impact of not knowing what's in your contracts is intensified by increasing M&A activity, threats to data security, new regulatory requirements demanding swift compliance, and businesses fighting to save time and money. Contracts are at the heart of it all,' he said. Sources: BusinessWire; General Counsel News
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