There was a time in the history of world business in which large firms integrated all of their operations under one roof, employing everyone involved directly. Globalization has changed the shape of business so much that this is almost impossible to find today. Big entities have consolidated, cut back and focused on several core operations — flexibility is the name of the game.
Today, the larger your business, the more contracts it will have out with individuals producing goods and services on strictly defined bases. Every kind of business needs these individuals — from the manufacturer that retains drivers for their logistics and distribution to the software firm that outsources the creation of press releases and advertising generally to writing professionals with niche expertise.
The name for these operators — contractors — indicates the central point around which your entity’s relationships to these individuals revolve. Contracts establish trust between individuals and the institutions they service to ensure they are on an equal playing field.
While the relationships between institution and contractor are deliberately looser and entail fewer mutual responsibilities than those between employer and employee, this doesn’t absolve your business from holding up its end of the free and fair bargain embodied in the contract. Contract compliance processes exist to make sure both parties get what they expected out of a deal.
An ongoing case in the logistics sector represents the liabilities incurred when an institution floats on its side of contract compliance. In early January, the City of Los Angeles filed a lawsuit against three different companies owned by NFI Industries of New Jersey, contesting that the transportation entities had engaged in schemes to avoid paying minimum wage and employee benefits by classifying hundreds of truck drivers as “independent contractors,” despite the fact that they “exert near control” over the drivers’ schedules, fitting the legal definition of employment.
The NFI case in Los Angeles shows what can happen when entities try to find ways around the law to engage in unfair, exploitative practices. Had there been a better understanding of the role of a contractor and the specific mutual obligations between parties implied in the agreement, it is likely that the financial, legal and reputational damages suffered by NFI now or in the future could have been avoided. The following is a short list of suggestions to help firms navigate the murky world of contract compliance.
1) Establish clear and consistent contract forms
Even smaller firms have a boilerplate contract for individual operators they work with on a temporary basis. Scaling up, we find firms that have different contracts for all of the categorical, geographical and other variations they encounter in working with contractors. This begins with the in-house counsel or legal team drafting the contract.
Almost every contract, and especially those establishing relationships between an individual operator and an institution, is going to be subject to some negotiation. It’s important, therefore, to establish which clauses are mandatory and which are not, along with many other duties.
2) Establish a workflow and centralize management
In order to handle this process in a coherent and timely manner, your legal team must establish a consistent workflow, with the proper hierarchies to manage contracts within the legal department and between it and accounting/budgeting, or even, where the size of the contract compared to the size of your business is lower, the board or core business team. Establishing best practices for the standardization of contracts is not just the way your legal department saves work for itself, but also how your whole business is freed from focusing on the picky details of compliance.
The only realistic way to manage operations at a larger scale is to have a centralized contract database, suited to the specific requirements of your organization, holding information about contractors, payments, regulations you’re subject to, fulfillment, schedules and so on.
3) Standardize and automate
Drafting and signing a contract is only the first step in processes that can take months and sometimes years. Any responsible business will include in that contract benchmarks on progress and standards to evaluate contractor performance (what is called auditing in other contexts). Effective auditing can not only reduce the amount of work, but maintain your revenue by eliminating wastage and overpayment.
Standardizing goes past the length of a contract to payment, renewal and storage of data on past contracts, which is how you stay in the good books of regulatory agencies and the IRS. Contracts must also constantly be updated per the regulations of each city, state and country within which they apply. This sounds like a massive headache, but it can be made quite simple through automation.
Contract management software is the way to automate all of these tasks, in the process reducing them from giant amounts of work to quick steps taking no time at all. Blueprint OneWorld’s contract management software can establish the core of these practices. Here are a few of the features it provides:
- Manages all of your contract information from a central repository
- Assigns different levels of permissions and security
- Compartmentalizes by type and location of contract
- Assigns supervision of individual or groups of contracts
- Easily creates and files status reports through our Report Builder Wizard
- Sends alerts on contracts that have expired or that are coming up for renewal
We hope to be your first entry point into a safe and effective strategy of contract management. Please call or email us to discuss this and our other solutions.