August 17 by Prashant Dubey
What is Contract Integrity?
Integrity? What does being honest and having strong moral principles have to do with a contract repository? Integrity is an over-used term in corporate speak and is used in many different contexts – in this case, it’s not about having a moral compass, but rather, ensuring that the contents of a contract repository can be relied on for business decision making. This likely makes sense to most – if something or someone has integrity, we feel we can trust them and therefore rely on them.
As such, a High Integrity Contract Repository is one that is a “source of truth” for material obligations of a company and can be relied on. How does one dissect this concept and identify the leading indicators of repository integrity?
The 50 Shades of Integrity
Contracts fundamentally represent agreements between parties and the related obligations. If contract documents are not organized clearly, and you are unable to identify the necessary agreements and obligations, the original contracts lack integrity.
Here is an example of how an ineffective contract repository can lead to numerous business problems:
If I know that I signed an agreement with Acme Inc. a few years back and I believe the agreement is still active, I still would need to see the actual document to confirm the theory. If I look in my company’s contract repository, and I cannot find an agreement with ‘Acme Inc.’, then I will lack the necessary confidence in my belief to make an informed decision.
Let’s say I finally stumbled upon the document – it happened to be named: Contract with “Acmee Incorporated.” I then find that this document is actually a second amendment to the master, but I cannot find the master, I still do not know for sure if the agreement is active or inactive.
So…I continue my quest for integrity. After creatively entering search terms into the repository, I find the first amendment and the master agreement. After reading all documents, I conclude that the second amendment reset the expiration date and changed the term type to “auto-renew.” I now know the contract is active and will remain active until cancelled.
The Problem Continues…
Now that I think I have determined the active/inactive status of Acme Inc., I discover that my company’s contracting entity for this agreement was MyCo LLC. I then find another agreement for the same services with Acme Inc. executed by MyCoMerger Inc. a company we acquired a year ago. Now, I’m not sure if one supersedes the other. Moreover, this other agreement is a perpetual agreement, so it never expires.
In order to clear up all these seemingly conflicting points, I will try and get the history from my colleagues. Here’s the problem – both of the people named as signatory to the contract are no longer with the company. Further, one of the amendments is not even fully executed so I’m unsure about its validity. And the problems continue, with further wasted resources and opportunity.
In the world of contract repositories, a high integrity contract repository is one where entire families of contract documents are kept together, with inter-relationships articulated, documents fully text searchable, named in a common naming convention, with metadata extracted and attributed to each contract type.
How does this change the scenario outlined above? With a high integrity “source of truth” repository in place, not only would I have been able to find all agreements with Acme Inc. within minutes, but I would be able to easily determine the active status of the agreement – likely through an automated notification I would have received through business rules set up in the repository.
Not only can I now rely on the information in the repository, but also my colleagues can rely on me to represent the relationship with Acme Inc. with confidence. That’s a good outcome.