Review the most common maturity indicators to define how likely you are to encouter contractual risk. This maturity model is developed by myself together with Matt Whalley (then at Berwin Leighton Paisner, now at EY). Matt  one of leading legal risk management practioner and was published in our Contractual Risk Report.

I have now made a small revision of the Contractual Risk Maturity Indicators. As an easy task you can review the table below to see where you rate yourself in eleven separate areas. You will of course find that you are at different levels in different areas. However, contract risk is a systematic approach where you need to move your organisation to at least a bottom level.

After you’ve done this, identify which areas you want to improve, and you can adopt a risk-based approach to move-up the maturity scale.

Contractual risk maturity matrix

Use of contracts Use of templates Guidance & Training Use of legal department Risk control / contracts Contract risk analytics
Leading

Efficient, risk based contracting process, delivering enterprise–wide value

All business arrangements covered by written contracts, often supported by data from e-mail and recorded telephone conversations Enforced Guidelines embedded in templates; regular training programme for negotiation teams and management Legal team sets strategy as part of multi-stakeholder oversight group; planned involvement Risk-weighted controls embedded in templates and governance process Key Risk Indicator (KRI) dashboard analysis by risk type, contract type, business, geography
Mature

Efficient, risk based contracting process, delivering value to individual business units

Most business arrangements covered by written contracts Common practice; Up-to-date training and guidelines for negotiation teams; sourced/planned by legal Mainly strategic; involved in all key negotiations Risk analysis captured in templates Risk reported  across contract types, risk types and business
Developing

Largely efficient contracting process reducing costs for individual business units

Increasing number of business arrangements covered by written contracts Some; but often based similar signed agreement Sourced by negotiating teams with input from legal Mainly tactical; some early involvement in key negotiations Lawyers report risk in some contracts, usually as part of governance process Risks reported for individual business units
Ad hoc

No real process or value creation

Core business arrangements based on verbal agreements Typically based on similar signed agreement Ad hoc, sourced by negotiating teams Tactical/last minute/none Managed by use of lawyers None

 

Contract governance Electronic signatures Storage, archive and management Review and remediation Use of technology
Leading

Efficient, risk based contracting process, delivering enterprise–wide value

Automated for any “templated” agreement; live obligations dashboard Common practice Automated central “golden source”; contract meta-data compared to sign-off tables, payments systems and KYC data; Contract ROI actively managed Electronic clause library; rights to retrofit terms to existing contracts; pre-planned graded remediation plan Risk reduction and efficiency driver
Mature

Efficient, risk based contracting process, delivering value to individual business units

Common practice for volume negotiated agreements Common practice Automated central, searchable, electronic archive; contract ROI  actively managed Planned process to locate and remediate legacy contracts; Efficiency driver
Developing

Largely efficient contracting process reducing costs for individual business units

Emerging as common practice for specific agreement types On request from other party Selected contracts stored in formal archives, possibly electronic; contract management fragmented Large volume of paper based legacy contracts; Efficiency enabler;
Ad hoc

No real process or value creation

Isolated Unable to use Reliance on manual archive for key contracts; most contracts stored in e-mails, personal filing, personal drives Large volume of paper based legacy contracts Not used