Strengthening Organisational Accountability: Navigating Contractual Obligations

As the adage goes, “A chain is only as strong as its weakest link”. This maxim resonates strongly in the domain of contractual agreements, where the strength of business relationships hinges upon the commitment with which contractual obligations are honoured by all parties. Contracts, inherently bilateral or multilateral, characterise the essence of mutual accountability, delineating rights and responsibilities for all parties involved.

In the world of business dealings, contracts serve as the bedrock upon which trust and accountability are built. However, the dynamics of the business environment in which an organisation works can often lead to a breach of contractual obligations. Such breaches disrupt the equilibrium of organisational-supplier relationships and carry legal and reputational ramifications.

Far too often, organisations deflect accountability for contractual breaches onto third-party suppliers, overlooking their role in upholding contractual commitments. There are many examples where organisations fail to comply with their contractual responsibilities, attributing shortcomings solely to suppliers.

Consider a scenario where an organisation engages the services of a supplier for a software development project. Upon completion of the project, the organisation fails to honour the payment terms specified in the contract due to the missed deadline for completion. What if the missed deadline was due to the organisation failing to turn around approvals within the agreed timeframes, continually changing the scope, forcing the supplier to undertake more work to meet requirements, or not providing the required organisational resources to deliver on its obligations? Unless good project management practices are in place to deal with issues and variations as they arise, the supplier bears the brunt of delivering as per the contract.

Take an outsourcing agreement – where an organisation has engaged a third party to take over and/or run a full function (e.g. complete running of the service desk) or part of a function (e.g. security within the IT environment). To do this the supplier is required to comply with the organisation’s policies, architectural standards, security standards and so on, whilst being required to deliver services to an agreed level through mechanisms such as service level agreements (SLAs). What if the organisation does not have policies, has not shared updated policies, or has policies that are inadequate, ambiguous, or sub-standard? Even if the supplier has diligently complied with these deficient policies, the organisation remains liable for potential breaches of the contract due to the inherent shortcomings of its policies.

Consider as-a-service, licence-based models that require organisations to comply with agreed-upon usage terms. Often, organisations are under-subscribed therefore using more licences they are paying for, sharing passwords so that multiple users can access the licence or having an ineffective licence management and consumption model with little insight into how many licences are being used. Whist a “true-up” process can occur regularly such as six months or annually, organisations are often in breach of their obligations under the licence agreement.

Summary

To mitigate the risks of organisational breaches, a robust Contract Lifecycle Management (CLM) needs to be considered. This is particularly crucial when managing numerous contracts, where manual oversight becomes impractical. A CLM solution enhances compliance effectiveness, ensuring organisations maintain vigilance over their contractual obligations effortlessly. CLM is not just about managing third parties but seamlessly managing the obligations and deliverables of all parties.

For a confidential discussion on how EvolveCLM can help your organisation develop, implement or streamline the CLM function please contact us at: inquiry@evolveclm.com.au or www.evolveclm.com.au.