Contracts

You Can't Manage Hidden Risks

Unfortunately, for many businesses, significant risks are buried in a mountain of contractual paperwork.


When faced with a risk, you have a few choices. First, you can take steps to manage or reduce the risk, at least for things within your control. Second, you can transfer it to someone else, either contractually or via insurance. Or third, you can lump it, and hope that the risky event never happens. But you need to know about a risk before you can make these decisions. Unfortunately, for many businesses, significant risks are buried in a mountain of contractual paperwork.

 

One purpose of rolling out a contract management or CLM system is to give you a central place where contractual risks can be exposed and managed. But simply moving thousands of documents into one central bucket will not solve the problem. For true risk insight, you need to translate all those words into normalized data. This, of course, is what Catylex does. We're not a CLM system. We're the contract analytics engine that feeds your CLM with quality data, including risk data.

If I want understand price risk, for example, it's not enough to search for words like "price" or "pricing". It's also not much help to be told that a pricing clause was found in 85% of your sales and vendor agreements. You could probably guess that. What you need to know is which of your sales contracts lock in firm prices (which is high risk now that inflation is hitting 40 year highs), and which of your vendor agreements have unfettered or CPI-linked escalators (which is increasingly high risk). You also need to know which contracts give customers most favored nation treatment on fees and pricing. To understand and measure price risk (a type of contract risk), details matter.

 

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