The transportation and logistics industry is heavily regulated, with myriad federal, state, local, and international laws on the books whose terms are directly reflected in the contracts that exist between companies in this space and their suppliers, employees, contractors, and customers.
This poses a considerable compliance burden, as well as a legal, financial, and public relations risk that is associated with being out of compliance — or in material breach — of any of the commitments within any of those contracts. But technology can, and is, helping forward-thinking organizations in this arena mitigate much of this risk through active management of contract performance by ensuring obligations are met.
Avoiding missed deadlines
Secure, centralized electronic contract repositories are at the heart of today’s automated contract management software platforms. This technology ensures that staff at transportation and logistics companies are automatically alerted well in advance of important contractual obligations and provides precise information on the key deliverables and interdependencies within your contracts.
You can receive a “heads up” on something as simple as a contract with a supplier that is going to auto-renew — which you might, in fact want to cancel — or on something as complex as notifying you of certain terms, such as customer pricing changes or payment schedules, that go into effect when certain volume or project milestones are achieved or missed. In one case, there is the risk of being tied to another year of products or services that you had not intended to buy from your supplier, and in the other, the risk of missing out on revenue associated with a price change that you did not realize you had the opportunity to impose on one of your customers. Technology reveals past-due items, minimizing your exposure to risk and uncovering opportunities for savings or revenue.
Ensuring contractual compliance
This same technology is enabling many companies to immediately identify how new or changing industry regulations impact their agreements and, as a result, enables them to act on and mitigate the potential risks and consequences associated with being out of compliance. With the content of every contract stored in the searchable electronic repository, searches for keywords such as “weight,” “local tariffs,” “limitations of liability,” or “assignment” that are associated with the regulations in question can instantly surface all the contracts affected. Dashboards and reporting helps monitor trends and measure results against these stringent legislation and compliance requirements.
With these agreements isolated, transportation and logistics companies can make more informed decisions as to how to stay in compliance without violating these agreements. All information about the contract, including budget, cost, schedule, and acquisition, is available transparently for the appropriate personnel to review.
Managing standard language deviation
Another risk mitigation benefit derived from leveraging contract management technology is being able to manage and enforce the use of pre-approved, standardized language for clauses that are repeatedly used within your agreements. This is particularly important at organizations where a lot of people are involved in the contract lifecycle — from drafting, reviewing, redlining, and editing, etc. By using electronic clause and template libraries that are part of such systems, organizations can allow non-legal staff to work within parameters that have been pre-vetted by legal staff when they create or edit contracts, which will not be allowed to deviate from standard language. Or they can pick from one or more “alternate language” options that have been pre-approved to replace the standard language under certain, defined circumstances. Picture the staffer right out of college, just three months into the job, not knowing that he/she cannot just waive destination charges. Enough said.
Protecting against audits
Finally, these same systems track and save every change made during the contract drafting, negotiation, redlining, and approval process — what the change was, when it was made, and who made it — providing historical records of events. With a couple clicks of a mouse, a complete audit trail can be produced so that if you are ever faced with a compliance audit, you will have your bases covered. It makes the stress of going through one of these — especially if imposed by a government agency — a little less stressful. Retrospectively, systems of record deliver meaningful knowledge and visibility on these historical events. Proactively, however, you can identify the costs and risks due to errors by adopting strategies to prevent these situations in the future.
Going well beyond merely organizing contracts so they are not spread across an organization’s desktop hard drives, shared folders, or hard-copy filing cabinets, today’s contract management software platforms are helping transportation and logistics professionals in the procurement, sales ops, financial, and legal departments sleep better at night knowing they have a handle on the risk associated with doing business in this space.
Timothy Donaghy is vice president of technology for contract management software provider Contract Logix.