Contracts: Renewal jeopardy
Almost half of in-house lawyers say their companies are missing automatic contract renewals at an average cost per contract of almost £30,000, a report has found.
A significant minority of lawyers (15%) said they resorted to Post-it notes to remind themselves when contracts renewed, while 12% wrote reminders on their hands.
One in-house lawyer said their organisation had mistakenly renewed a contract for £250,000.
The research, commissioned by contract management software supplier ContractWorks, was based on responses from 100 in-house lawyers and company secretaries.
Despite their fondness for Post-it notes, almost all lawyers (87%) said they would be comfortable with artificial intelligence (AI) looking after their contracts. Only 2% said they preferred hard copies and traditional management systems to using AI platforms.
Almost three-quarters (71%) said their business did not focus enough on managing contracts after they were signed. The average number of missed renewals in the last 12 months was just under 2.5, and the average contract value was £29,807.
The biggest barriers to using legal tech to manage contracts were lack of resources (36%), not knowing the best solutions (29%) and the issue not being treated as a high enough priority (20%).
Mark Rhodes, managing director of ContractWorks for Europe, described the problem of automatic contract renewals as “very widespread”, and where they were not tracked they renewed themselves before they could be terminated.
“What we tend to see is that companies put a huge amount of time and effort into securing the right deal, but as soon as the deal is signed, responsibility for managing the contract after that falls between the cracks.
“Lawyers are under a lot of pressure and sometimes responsibility for managing contracts is devolved down to other departments. There may be no clear lines of responsibility once the contract is signed off.”
More than half of in-house lawyers (55%) said responsibility lay with the legal team, 37% with procurement, 26% with sales, 22% with finance and 21% the business owners.
Mr Rhodes said the pandemic had “highlighted the problem” of automatic contract renewals.
“It’s one thing having to locate contracts in your office but if you’re telling everyone to work from home and trying to ensure business continuity, it’s even harder to find the information you need.”
Mr Rhodes said missed renewals were “only one consequence” of failure to stay on top of contract obligations. Other consequences could be financial penalties, lost customers, reputational damage and formal disputes.
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