How do you ensure a contract is followed?

My background is in construction management and construction administration, I've found it extremely helpful for both parties in a contract to perform initial and periodic ongoing contract reviews with all parties that have a management/supervision role in executing or administering either party's obligations under the contract terms. Too often, especially on the Prime Contractor or Subcontractor side, the frontline project managers, superintendents, and site supervisors responsible for execution of the work under the contract have limited, if any, exposure to the terms and commitments of the contract. A well briefed team is much better prepared to execute well and in compliance with the terms of the agreement.

Clarity within the statement of work. Clarity within the deliverables. Clarity within the timeframe of performance and performance measurement. Clarity within the payment terms. Clarity within the terms and conditions. Quarterly contractor meetings to discuss how things are going while documenting areas of improvement with action items.

To ensure that a Contract is followed in its true sense, one of the foremost things we should do is to capture the obligations of both the parties along with the timeline. Second step is to categorically identify stakeholders who will be responsible to track the execution of such obligations. Obligation Management Sheet must be shared periodically with the Business and Legal Teams to ensure any gaps. If execution of any obligations is getting delayed, it's always advisable to keep the other party informed on this. Now, we do have a variety of Obligation Management features in a lot of CLM Tools. We can use technology to prove its efficacy and help us keep track of those.

I tell my clients a contract is only as good as it is 1) clear and 2) a fit for that particular scenario. The biggest mistake I see in the world of contracts is parties executing a contract that in some (or multiple!) way(s) is not a fit for their scenario. They rely on what was discussed verbally and then put a document in place that is a mismatch. #slowyourroll ! Often parties are so anxious to move forward they don’t put the effort and time in at the start to make sure that everything actually IS clear and that parties are on the same page. The second thing I tell my clients is that even the best of contracts cannot save you from the wrong relationship. The success of ANY scenario primarily depends on the strength of the relationship.

Never assume. Contract review is crucial to ensure all important articles are deliberately clarified. Do cross check with lawyers before any decisions are made. In my company, we make it a practise that any contract has to be reviewed by internal contract personnel and cross check with our lawyers to avoid any assumptions.

So much of this is a variation on relationship building. If you are communicating, it is much harder to lose track of key elements of the contract and stay ahead of problems. Even after you have reached an agreement and signed off, in my experience the effort to "Say Hi" to your contractor or services vendor from time to time builds a mutual respect that counteracts deviations from the agreement on the basis of respect. It works very well, and feels better than arguing when it's too late.

You couldn't have put it better address any issue or change promptly. Most of the claims I get involved in stem from not addressing issues, queries and changes promptly!

In my experience, consistent and transparent communication between parties builds a foundation of understanding, accountability, and trust. Demonstrate forethought and professionalism by offering timely, good-faith updates in anticipation of fulfilling your contractual obligations by deadline. Memorialize verbal conversations of material importance via email in order to solicit a shared comprehension. Openly convey the benefit of the doubt, and keep communication issue-oriented to ensure a successful closing.

As a project manager, one key tactic I use to ensure contracts are followed is regular and open communication. I make it a point to maintain regular contact with the other party. By providing updates, feedback, and reminders when needed. If any issues or changes arise, I address them promptly to prevent any potential escalation. Having a proactive approach helps to maintain a smooth and successful partnership, and helps to ensure terms of the contract are followed.

Contracts are “tools” to be used in your business to support every exchange of value - whether with clients, vendors, team, etc. Become familiar with your contracts (and get good ones, drafted in the first place!) and use them regularly, so that you are comfortable with the language, and the processes for following, or enforcing those contracts. And if you need help, be sure to work with a lawyer who is a fit for your particular business or scenario, and have them provide you with some coaching on the use of that contract. I regularly provide this to my clients, and it can completely change the way they approach certain systems, processes, and relationships within their business. Also, calendar important dates related to your contracts!

What gets measured gets managed. One should deviate KPI's from every contract, measure and report them. Mind: This does not apply only to the other party! It should also be used to control whether our own organisation follows the contract.

A good contract management process helps here. Truth is that a contract, though prepared by legal, usually has many teams working together to ensure implementation. It is important to communicate the essential deliverables, timeliness and standards required to every party involved. You should then ensure to check in regularly to ensure everything is according to plan. Also put in place measures for feedback, especially when things are going out of plan. So, you can know how to manage the situation with the counterparty.

Get your Project managers, construction managers and/or superintendents to write in a daily site diary, the more detailed the better. This is beneficial in hindsight on lessons learnt and retrospective claims.

In my experience, the best means of compliance with contracts terms is to make sure your own parties, whether in the administrative body, commercial or operations teams, are well aware of the rights and obligations arising out of the contract entered into. So, effective internal communication is key to avoid unnecessary breaches and exposure to the company.

I can re-emphasize that: Don't just change things in the daily process or the application of the contract without adjusting the contract. If you want the other party to stick to the contract terms, you have to do it first. This also means that there should be no such sentences like "it isn't eaten as hot as it is cooked". If the terms written in the contract are outdated, not applicable anymore, or you want to handle it differently, adjust the contract!

I tell my clients to keep performing even if the counterparty may have breached. What I've seen several times is one side believes the other side has materially breached and stops performing. As the dispute moves forward, it is clear it was that party's own nonperformance that caused the situation. Now the party who believed they stopped because of the other side's breach is now causing even more damages due to its nonperformance.

Pay attention to any early red flags or signals that things may be going off-track. One of the mistakes I regularly see clients make is being unwilling or hesitant to address concerns that they spot early on, hoping they will resolve on their own, or will somehow be addressed by the other party. Things usually escalate instead and they regret not correcting course earlier or ignoring their hunches or instincts. It is nearly always more expensive and more costly from a time, energy, and financial standpoint the longer you wait to resolve something.

Sometimes one might not want to enforce a right. E.g. if my contractual partner was never in breach of a clause, but now he would have to pay a penalty, I might want to waive it to express gratitude. How do I do that? I calculate the penalty and send him the "invoice" for it zeroed out. This will have a much more positive impact on the relationship than just not mentioning it, and it does not jeopardize the contract.

Excellent perspective from Mario! Contracts founded on mutual respect and accountability work best. I have even run into this in managing invoices and receivables, and with rare exception, people treated fairly will respond positively.

Doing a post-mortem on contracts is critical, but especially any for which we had some problems. What went wrong, what could we do to avoid those problems in the future, and (most importantly) is that solution a viable economic approach considering the circumstances. We can't spend thousands to lose value on a $100 contract.

One of the most important things to ensure a contract is followed over its lifetime is a very simple one: Design it to describe the process and live it! There are too many contracts that are only kept in a drawer after they are signed, and they are taken out only in bad times to go to court. Such contracts will never be followed, because they are not describing the day-to-day business precisely enough. A contract will only be followed if it reflects the reality for both partners.

In general it is advisable not to commit to any duties and obligations which deviate from company processes and normal operating procedures. If any exception is to be made to this principle (for example by granting exceptional shorter payment terms) make sure to align roles and responsibilities within the organization so to ensure compliance contract terms.

All the suggestions above relate to post contract execution actions. An important element of contract implementation and execution is pre-contract due diligence. If it is a new customer, do some digging to discover your prospective contract partner's past performance. If they are a repeat customer, delve into those aspects that proved difficult during the execution of the past contract(s) and ensure they are addressed this time when the contract is executed and more so during execution. Also ensure your Project Team Leader is aware of these pain points and proactively works to address them before they become irritants.