Effective contract management for start-ups: Navigating the post-execution journey

By Omoruyi Edoigiawerie, Esq

When start-ups think of contracts, they often focus on drafting airtight agreements and getting all parties to sign on the dotted line. But what happens after the contract is executed? The reality is that the real work begins once the ink dries.

Contract management extends beyond signing; it’s about ensuring the agreement is followed to the letter, deviations are minimised, disputes are addressed effectively, and the relationship thrives. For start-ups, mastering contract management can mean the difference between success and unnecessary legal trouble.

I’ll share insights from over 15 years of drafting and monitoring contracts in this article. We’ll delve into strategies to ensure compliance, address common pitfalls, and explore relatable scenarios that start-ups encounter in their journey.

1.            The Foundation: Monitoring Compliance

Once the contract is executed, monitoring becomes critical. This starts with understanding each party’s obligations. Every start-up must ask, “What mechanisms do we have in place to track performance?”

*Three Practical Steps for Monitoring

a)            Centralize Contract Storage: Too often, start-ups execute contracts only to keep them tucked away in email archives or forgotten in folders. Use contract management software, or even a simple shared drive with proper naming conventions to ensure agreements are easily accessible. Let’s consider a start-up that signed a vendor agreement for delivery services but misplaced the contract. When the vendor underperformed, they struggled to pinpoint specific clauses for recourse. Centralizing their contracts would have prevented this oversight.

b)            Assign Contract Owners: Every contract needs an internal champion to follow the terms. For instance, if you’ve entered a partnership agreement, assign someone in your team to monitor deliverables, deadlines, and milestones.

c)            Use a Compliance Checklist: Break down the contract into actionable points. For example, if you signed a software licensing agreement, the checklist might include:

I.             Payment schedules and amounts

II.            Software update frequency

III.           Support services included

By tracking and ticking off these items as they occur, you ensure obligations are being met. I know for a fact that many disputes stem from unclear monitoring structures. A simple habit of periodic check-ins on deliverables can save you from unpleasant surprises.

2.            Ensuring Minimal Deviations

Contracts are designed to provide clarity, but in the start-up ecosystem, rapid growth and changing circumstances often lead to deviations. The key is managing these changes without violating the original agreement or damaging relationships.

*How to keep parties aligned

a)            Regular Communication: Establish touchpoints with the other party to discuss progress. This could be quarterly meetings or check-ins aligned with contract milestones. To drive home this point, let me share the story of a renewable energy start-up, partnered with a supplier for solar panels. During the second quarter, the supplier proposed a change in delivery timelines due to global shipping challenges. Instead of arguing, the parties simply leveraged a prior communication structure included in the contract to renegotiate timelines, avoiding any breach of contract.

b) Amendments Over Assumptions: One mistake start-ups make is assuming informal changes won’t matter. Always document deviations formally as amendments to the contract.  A start-up offering co-working spaces allowed a client to delay payments by mutual verbal agreement. When the relationship soured, the client contested overdue invoices, claiming the payment terms were ambiguous. A signed amendment would have prevented this issue.

c)            Clear Internal Processes: Ensure your team knows the contract’s terms. For example, if the contract specifies that approvals for changes must come from a senior executive, ensure no junior staff inadvertently commits to modifications.

I can’t say this enough, contracts are living documents. Embrace flexibility but formalize every adjustment. Assumptions often lead to disputes and eroded trust.

3.            Activating Dispute Resolution Mechanisms

Disputes are almost inevitable, but how you handle them determines whether they escalate or are resolved amicably. Contracts often outline dispute resolution methods, such as negotiation, mediation, or arbitration. Start-ups must know how to activate these mechanisms effectively.

Steps to Resolve Disputes

a)            Understand the Dispute Resolution Clause: Ensure you and your team are clear on the agreed process for resolving conflicts. A Fintech Start-up entered an agreement with a partner bank. When a dispute arose over charges revenue sharing, they went straight to court. However, the contract had made arbitration the first line of dispute resolution. This misstep delayed resolution and increased costs.

b)            Start with Negotiation: Often, the simplest way to resolve disputes is through direct dialogue. Approach the other party calmly, focusing on the issue, not emotions.

c)            Always keep records of communication: emails, meeting minutes, or recorded calls during this phase.

d)            Involve a Mediator: If negotiations fail, mediation is a cost-effective and less adversarial step. A neutral third party can help both sides reach a mutually acceptable solution.

e)            Litigation as Last Resort: Start-ups should view litigation as final options due to their costs and potential to strain relationships.

I always say to founders, avoid knee-jerk reactions in disputes. Always follow the agreed resolution pathway, as deviating can lead to unnecessary delays or penalties.

4.            Pitfalls to Avoid in Post-Execution Contract Management

Start-ups, by their nature, are agile and fast-paced. While this is a strength, it can also lead to neglect in managing contracts effectively. Here are some common pitfalls:

a)            Failing to Review Contracts Periodically: Circumstances evolve, and contracts should be reviewed to ensure they remain relevant.

b)            Overlooking Termination Clauses: Every start-up should know how to exit a contract gracefully. Ignoring termination clauses can lead to penalties or strained relationships.

c)            Ignoring Escalation Timelines: Contracts often specify timeframes for raising issues. Missing these deadlines can weaken your position in a dispute.

d)            Over-Reliance on Verbal Agreements: In the heat of operations, it’s tempting to make verbal adjustments. Resist this. Always document changes formally.

Contracts are like relationships, they need nurturing. Neglect leads to misunderstandings, and misunderstandings lead to dispute.

*Conclusion

Effective contract management is the bridge between a well-drafted agreement and a successful business relationship. For start-ups, where resources are tight and stakes are high, this bridge must be solid. It’s not just about enforcing terms; it’s about creating a framework that fosters accountability, minimizes disputes, and allows flexibility when challenges arise.

Remember, contracts are not just legal documents, they are the living, breathing blueprints of collaboration. Mastering their management could very well be the competitive advantage that sets your start-up apart.

*Omoruyi Edoigiawerie is the Founder and Lead Partner at Edoigiawerie & Company LP, a full-service law firm offering bespoke legal services focusing on start-ups, established businesses, and upscale private clients in Nigeria. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. His firm can be reached by email at hello@uyilaw.com