Market intelligence - Contract [mis-] management
Businesses are losing tens of thousands of pounds each year through ‘forgotten’ high value contracts they have failed to terminate or renegotiate, according to a recent (2021) survey commissioned by ContractWorks, a contract management software provider.
The survey of in-house lawyers in the UK found that nearly half (46%) of respondents worked for a company that had missed an automatic contract renewal in the last 12 months. The figure rose to 56% for the period before that. On average, each auto-renewing contract had cost the company £41,473, with companies missing an average of more than two contracts in the past year. One respondent said their company had mistakenly renewed a contract costing over £250,000.
The survey also revealed that 15% of executives had resorted to using Post-it notes to remind themselves of important contract milestones, while 19% said they had relied on their partner to remind them! And 12% said they had even written reminders about an upcoming contract renewal on their hand!
Missed renewals are only one consequence of losing visibility of live agreements. Failure to stay on top of contract obligations can result in non-compliance, with consequences including financial penalties, lost customers, reputational damage, and even formal disputes.
A case in point came to light earlier this year in Arani v Cordic Group. The court decided that the buyer's notice of post-sale warranty claim in an M&A contract was not effective. Notification did not include full particulars of the claim or specify that a claim was being made; it referred only to the possibility of such a claim. The notice was also sent one day late, over 16 months after completion of the company sale and purchase.
The judge concluded that the notice was an unsuccessful "last minute tactic" to prevent the release of funds to seller from retention. In this context all buyers should, amongst other things, diarise claim time limits and know how to locate the executed contract allowing sufficient time properly to make the claim.