What is a Contract Approval Form?
At its core, a contract approval form is a document that standardizes the evaluation and vetting of legal agreements within a company. By clearly defining the parties involved, significant financial terms, and the allocation of risk between the parties , contract approval forms also guide decision-makers in making sound decisions on whether or not an agreement is in a company’s best interests. Contract approval forms are typically executed prior to signing a given legal agreement, and are usually subject to all requisite changes having been made. A properly executed contract approval form may act as a waiver of breach or other issues, under the doctrine of waiver and estoppel.
Important Elements of a Contract Approval Form
The key components of a contract approval form are relatively straight forward and for the most part self explanatory. Examples include:
Contact details. This is the section of the form in which you indicate the business unit, person, or persons responsible for submitting the contract to the legal department, as well as those who should be notified when the contract has been approved. Including contact information is especially important if it is common for one person within a department to complete the form and submit the contract for review on behalf of other persons within such department. Contact details may also include people who should be copied on the contract once it is approved from a negotiation perspective (as opposed to a legal review) or people who should receive a copy of the final signed document.
Approval workflow. Your form should follow the basic approval workflow your business follows when entering into a contract. For example, if you typically have two approvers for contracts greater than $50,000 in value and only one approver for contracts less than $50,000 in value, your approval workflow section should reflect such procedure.
Signature requirements. The parties who are required to sign a specific type of contract should be identified in the signature requirements section of your contract approval form.
Why are the above components critical? First and foremost, these components will help you identify a person or people on your team who can quickly be the point person to clarify and obtain any missing information. Conversely, these components ensure that all people on your team who need to be informed of the outcome of the contract approval process, and who may need to be involved in the process, are appropriately informed. If some of these individuals have responsibilities and obligations that result from the approval (for example, the individual’s department is required to follow up with the vendor to ensure that the contract is being followed by vendor), including their information on the form is important because they are effectively approving the terms of the contract and intention to work with the vendor on determining how to follow up on the contract. If you have an automated contract approval process, the people and departments indicated on your form should be copied on appropriate notifications from your Contract Management System based on the information you provided on your form.
How to Prepare an Effective Contract Approval Form
To develop a contract approval form that meets an organization’s needs, it is essential to understand what they need and how best to structure the information. The following steps can provide a useful framework for doing so: Step 1: Identify the appropriate groups and individuals who will use the contract approval request form. It can be helpful to, at a minimum, include the entire legal department, executive management, HR, marketing, sales, IT, finance, and the organization’s outside counsel on the request form. Step 2: Incorporate any requirements from your DCAA-approved accounting system for documentation regarding contracts and sub-contracts into the form. Since government contractors have explicit requirements that must be met to comply with their DCAA-approved accounting systems, it is important to make sure the form meets these requirements, if applicable. Step 3: Identify how your organization would like to customize the fields and information included in the form. For example, you could include the process for addressing the identified requirements and/or identifying the responsible parties for each step of that process. Step 4: Develop requirements for contract review requests to ensure consistency across requesters. You could, for example, include requirements that requesters identify the timeframe they need a contract reviewed, whether or not a contract contains a non-disclosure agreement, or whether or not a contract includes revenue recognition considerations. Step 5: Determine the best system for submission and tracking. Individuals can track all document submissions and requests through an automatic Excel spreadsheet (for example) or use a software program that helps set deadlines and ensures that all contracts are reviewed properly.
Contract Approval Forms Best Practices
Implementing a contract approval form in your organization can streamline the contract negotiation processes and overall contract management. By following certain best practices, you can realize the full potential of the contract approval form.
Keep it simple and essential. A contract approval form shouldn’t be a new bureaucratic hurdle for your organization. It should serve as a means to expedite the process and maintain standards. Limit the number of fields that must be completed for requestors and approvers. Focus on the most important elements of the transaction without excess detail.
Ask the right questions. The information solicited on a contract approval form should be based on standard contract review criteria. These may include: how the contract affects a department’s workflow, cost or revenue impact, timeframe, vendor reliability and quality of goods/services offered, impact to customer satisfaction or compliance with regulations.
Make them accessible. If you don’t have a typical enterprise-wide agreement management platform, your contract approval forms should be available to all employees with a need for them. Contract approval forms need to be widely distributed both for easy access and to provide context for any contract or potential transaction. This means hosting forms on your intranet, every department’s portal and relevant internal systems.
Translate them. Your contract approval forms should be translated into appropriate languages for all parties who might review or sign them. Not everyone in a company is a native English speaker. Translation can help increase compliance and adherence of the approval process since employees will be able to understand what they are signing. Translate your contract approval forms into whatever language(s) necessary for the people who are most likely to see them.
Include a history. Keep a copy of every updated version of the contract approval form available to employees. When updating a contract approval form, keep older versions readily accessible through an archive link. Previous versions can still be relevant for a number of reasons. Changes to contract approval forms should be documented so that employees know what has changed, and why.
Common Pitfalls to Watch Out For
Despite the fact that Contract Approval Forms have been around for many decades, some businesses still use them incorrectly. A few common mistakes include: Instead of relying on the individual(s) named in the form, maintain a comprehensive list of the individuals or departments who must approve contracts and then send all contracts to those individuals. This will ensure that all necessary individuals are notified of a new contract so that they can review and approve it. Ensure that the list of individuals or departments who need to approve contracts is accurate and kept up to date at all times. This is especially important if approving contracts is part of an individual’s job duties. People come and go so having an accurate list of those who need to approve contracts will help make sure that nothing falls through the cracks. Make sure that the information on the form is specific enough to allow the approver to determine why the contract is being provided to them for approval. For instance, if you are providing the approver with a new contract template, it should be clear what the purpose of the template is (e.g., template for a new independent contractor agreement or template for a new consulting agreement). For instance, if you just want an approver to look at a new contract template to make sure it is acceptable, but you don’t require their approval before a contract can be signed, be sure to let the approver know that. Alternatively , if you are presenting an approver with a contract that requires their approval before a contract can be signed, be sure to let the approver know that you cannot sign the new contract until you receive their approval. Otherwise, contracts could be sent to individuals who have no authority to approve contracts and the contracts will not covered by your policies for getting approval before signing contracts. If an approver must be included in the process to sign a contract, be sure to send the approver an approved Contract Approval Form along with the contract to be signed by the authorized signatory. Be mindful of the timeframes within which the various individuals /departments who must approve the contract must provide their approvals. For example, if you have an approval process where independent contractors invoices over $5,000 require review and approval by the CFO, be sure to send the invoice to the CFO as soon as possible so that if the CFO requires any additional time to review the invoice, they do not approve the invoice too late for payment under the terms of the Independent Contractor Agreement. Do not overlook the need for external providers to approve certain contracts. For example, if you are providing a vendor with a Vendor Services Agreement, you may want the vendor to sign an agreement as a condition to providing the services. Do not just get it signed by your company; make sure it is provided to the vendor for their signature and return.
Automation and Digital Options
Leveraging the power of technology is something that all businesses are looking to do in order to increase efficiency and maximize everything from communications to project management. Contract approval is no exception. Modern digital solutions and contract management software can automate the entire process, from sharing templates and components to tracking progress and monitoring report analyses. Automated systems help speed up the entire process, helping relevant stakeholders to move on faster to the next item on their to-do list.
These digital tools allow shared access to information and reports so that a precisely drawn audit trail can be constantly monitored, which is especially useful in light of the new GDPR regulations. GDPR is particularly significant for email consent, tracking recipients who opt out of various messaging streams so that you’re not constantly adding them back to mailing lists as you inadvertently do if you perform all processes manually.
Automation can track every stage of the contract approval process. For some contract approval forms that are lengthy or involve multiple parties, multiple rounds of review may be needed before a final signed copy can be circulated. In these instances, automated software tools can help you to identify the bottlenecks so you can speed up the final verification process.
Compliance and Legal Matters
Businesses must be mindful of a few legal considerations when using contract approval forms. First and foremost, the forms should comply with industry regulations. For example, health care organizations are subject to the Stark Law and the Anti-kickback Statute, which require a legitimate business purpose for paying referring physicians. Therefore, physician employment agreements must articulate the business needs of the organization for the physician’s services. Moreover, before the business agrees to any arrangement, the parties can ask themselves two questions: (i) what is the business need for the arrangement; and (ii) why is the arrangement better than alternatives? In addition, the business should ensure that the agreement complies with concurrent credentialing and privileging requirements and is signed and dated prior to billing under the agreement.
Entities that are required to retain documents for Medicare and Medicaid audits must keep copies of the approved contracts, even expired ones. It is good practice to keep these documents for ten years.
Case Studies and Success Stories
Acme Corp, a large national services company, struggled with contract management and compliance. This resulted in unnecessary risk to the company. Their sales team was spending large amounts of time completing contracts, which were often drafted incorrectly, or which did not adhere to company policies or state requirements, or could not be competitively priced. Once the sales team had completed the drafting of a contract, they would submit it to the legal department for review. The contract was rarely returned in the same condition it was submitted, after having gone through legal review, thereby creating resentment and distrust in the process. The return of the contract with comments often occurred late in the process, making the imminent deadline for price changes by the vendor impossible to meet. The shipment delay that resulted in turn caused significant penalties to Acme Corp, and further exacerbated the distrust level within the company. In addition, Acme Corp did not have the capacity to train its sales team about the importance of legal terms and conditions, and how even a slight change could cascade into pricing issues. They had no contract templates or guidance documents for their sales team.
Now, Acme Corp has implemented a contract approval form process. The form is pre-populated with company contract standards, state mandates, and pricing information. Templates have been developed in Word , and integrated with the form. The sales team complete the form by indicating what services they are selling and to whom. Any non-standard changes to the default information on the form must be provided as a contract addendum, which must be approved by legal counsel. The sales team can upload the required addendum or template into the form. The form has workflow capabilities, so once it’s completed, it is routed to legal counsel for review. Comments are directly added to the document in a free flowing text box. If no comments are needed, the system allows for instant approval without bouncing the document around for signatures. If comments are needed, those comments are tracked by the workflow system. The sales team is abiding by company policy and staying within parameters for price changes, and acquiring approval from legal counsel for any changes to standard terms and conditions, including terms that affect pricing. Acme Corp sales team is pleased with the ease of the process and is able to spend more time selling, and is having fewer issues turning contracts in on time. Legal counsel is also pleased with the process and is able to access the best practice templates the sales team is using, assess the comments added to the documents, and streamline approvals. The missed deadlines caused by the contract delays have grounded to near zero, and the overall profitability is better. An added benefit has been that Acme Corp is in full compliance with all contract approvals.