What is Contract Compliance?

Contracts are legally binding documents, and each one has its own obligations to fulfill. There are also legal requirements for contracts that may change for different regions. To observe the norms and procedures related to contracts, compliance is necessary.

Contract Compliance Definition

In simple words, contract compliance is the observance of how your contracts satisfy external and internal requirements, and how obligations and milestones are met. Usually, reviews are conducted to check compliance and any deviations. As such, the following can be used as a definition:

Contract compliance is a form of management to ensure a contract meets legal requirements and that each party to the contract abides by the terms and obligations specified.

Contract compliance involves planning, implementing, measuring, and constant improving. 

Challenges of contract compliance

At first glance, it doesn’t sound difficult to stick to requirements and have compliance reviews from time to time. But in reality, if you factor in a massive amount of documents of various complexity, the contract compliance process can be very difficult to manage. Especially if you do not have a big legal department. 

Here are the most common challenges companies face.


Contract compliance is a massive undertaking, and if you work with large, high-risk documents, it becomes even more difficult. This task needs a lawyer with strong experience as close attention should be paid to details and regulatory requirements. That’s why in-house teams usually spend a huge amount of time on compliance. The problem is it steals their time from higher-value tasks.

Lack of oversight

Contracts must be compliant, but many other tasks must be also done. It’s quite challenging to find a balance in between. It would be difficult to create and maintain a manual approval procedure that works, but automation can help. 

Losing the right version

Working on documents involves negotiations and redlining. At minimum, it creates a few versions of one particular contract, which makes it easy to lose the right one among the others. Omitting important details or sending the wrong version for a signature are possible consequences. Making matters more complicated is if emails or messengers are used to exchange documents.

Changing regulatory landscape

Everything changes, and so do regulatory requirements that only make compliance even harder. The people responsible for contract compliance must always be wary of new regulations and amendments being added to existing regulations.

Get free ebook ‘Contracts 101: Your Guide to Most Common Legal Templates’
Grab my copy

Why is contract compliance important?

For any contract strategy, compliance is crucial. To understand why, here are some consequences of poor compliance:

  • Reputational losses. If you fail to meet the necessary standards, your reputation may suffer. It can erode the trust you tried to build and ruin business relationships you established.
  • Financial losses. Failure to comply with laws or breaking contractual obligations may entail fines and penalties.
  • Time losses. As mentioned above, contract compliance is a time-consuming process. If you fail to comply with regulatory or contractual requirements, you may spend additional time fixing issues or addressing legal problems.

On the other hand, efficient contract compliance mitigates time, money, and reputational losses, as well as poor customer experiences.

Ensuring Contract Compliance

Usually, legal departments deal with many contracts, and with each passing day, this number only grows. The more contracts you have, the harder it is to ensure compliance. Compliance standards change, increasing the difficulty. To make sure you meet contractual obligations, you need to take particular steps for every contract. Each of them is an integral part of contract compliance.

  • Contract templates. Keeping examples of different kinds of contracts will accelerate the creation of new ones. They can also give you insights on how you structured compliance measures for previous documents.
  • Milestones. Set checkpoints and goals throughout the contract’s entire lifecycle to stay current and fix any issues that appear. 
  • Metrics. After you set milestones, it would be good to have some metrics to measure compliance. Depending on your contract and business activity, these can be different things. For example, it may be the number of delivered goods or calls to partners to check if they received what was agreed.
  • Areas of responsibility. Usually, several people and departments are required for fulfilling a contract. Make sure each of them know their roles and responsibilities.
  • Standardized process. Once you have roles, milestones, and metrics established, you should also create a plan. This would take the form of a standard procedure to help you reach your goals during each step. But if at some point you find some inefficiencies, you should make adjustments to improve the process.
  • Audit. Contract compliance audits should be conducted regularly and often. They provide information as to whether everything is fine or not, and what needs to be improved or changed.
  • Adjustments. When something is not working as well as it could, it needs adjusting. Audits and adjustments throughout the whole contract lifecycle will help you meet your obligations. 
  • Keeping up with changes. There are rules and regulations that vary in different regions. They may change, which is why you should always be informed about such changes.
  • Automation. Modern CLM software allows you to track and control the whole contract lifecycle, comply with all requirements, and meet contractual obligations. 

Although accomplishing all these steps is not always easy, this strategy can considerably simplify the compliance process and help you keep your business on the right track.

Best Practices for Contract Compliance

To make the compliance process easier and to reach the goals you want to achieve, we recommend you use these best practices for contract compliance.

Create a contract playbook

If you’re not from the legal department, you may need a lawyer’s help with contracts. Especially if you’re working with them for the first time. That’s why a contract playbook that guides you on how to stay compliant will come in handy. Create one that contains information on everything from what things require approval to governmental regulations.   

Standardize templates

Templates that meet a particular standard will help you decrease non-compliance. But that’s not the only benefit it can provide. In addition to that, pre-approved templates will significantly speed up the process and help your legal team by reviewing every line of each document. This allows your business team to work on documents independently with minimum risk. 

Keep examples in a centralized repository

It’s convenient to keep all of your contracts under one roof. In this case, they’re always close at hand and easy to access. It allows you to use previous contracts as a basis for new ones while providing you better control over your documents. Also, you’ll gain some insights on how similar contracts were managed and if any troubles occurred, letting you build a better compliance strategy.

Organize efficient approval processes

Before sending a document for signing, it should be reviewed and approved. An efficiently organized approval workflow will ensure that everything’s done right and that contracts can be signed with minimal risk. It allows your legal team and stakeholders to spend less time reviewing documents at each stage of the contract lifecycle. To improve your approval workflow, try using tech such as contract lifecycle software. You’ll be able to assign specific team members to check certain clauses, and automated notifications will inform all signees when they need to review or sign a contract.

Set goals and KPIs

Define your goals and set metrics to measure the performance of your team. Conduct regular audits to check if standards are met, if KPIs are still achievable, and if there are any points that need to be changed.

Get our free ‘Legal Department Metrics’ cheat sheet
Understand the value the department brings to your company, and report it to the stakeholders.
Grab my cheat sheet

Clarify roles and responsibilities

Make sure everyone involved in the contract workflow clearly knows their responsibilities. If they don’t, something critical might slip through. This can negatively impact a contract’s security, validity, and performance.

Keep up to date with changes

Someone has to remain vigilant and watchful if any regulatory or legal changes occur. As soon as something happens, all processes should be updated accordingly as quickly as possible.

Make a contract compliance checklist

Creating a contract compliance checklist may prove helpful. This document can help monitor how your organization complies with rules, regulations, and best practices. It can even point you in the right direction, while reminding you about possible trouble spots and how to resolve them. Here’s an example of such a checklist so that you have an idea of matters you should consider with regards to a compliance audit.

Managing the contract lifecycle

  • What is the duration of the average contract lifecycle? 
  • How much time does it take to complete contract administration? 
  • What is the average response time for legal review within the business? 
  • What is the cost per transaction, and is it profitable?

Evaluating contract templates

  • Are your contract templates standardized enough? 
  • Do your contract clauses and templates meet the latest regulatory requirements? 
  • Are your contracts drafted to sufficiently minimize risk? 
  • Are your legal agreements readable? 
  • Do any deviations from standard terms happen? How frequent are they?

Managing contract data

  • Do legal and business teams collect all relevant contract data?
  • Is contract data available to the relevant stakeholders? Is it kept confidential from external parties?
  • Do you store and process personal data in accordance with data protection legislation?

Complying with contract terms

  • Have you successfully fulfilled your contractual obligations?
  • Are contract key dates met on time? 
  • Are payment terms constantly met?

Managing contract renewals

  • How many contract renewals do you miss? 
  • How many of your customers have automatically renewed their contracts with you?
  • What is the churn rate, and which customers decide not to renew? How will this affect your revenue?

Contract Compliance with AXDRAFT

We can say that being compliant means managing your contracts’ lifecycle efficiently. This entails setting metrics, conducting audits, and making adjustments. A contract’s workflow is dynamic, and the environment constantly changes. 

Looking at contracts from this perspective will aid you in organizing an effective, standardized workflow that can also simplify contract creation. It can also help ensure that you’re efficiently fulfilling your contractual obligations.

Streamlining processes

To streamline the contract creation and compliance process, you can use contract lifecycle management tools such as AXDRAFT.

With AXDRAFT, your contracts are kept in one centralized storage that can also be integrated with ContractWorks to provide a go-to source for all documents. You can quickly find a contract created for a particular country, company, or user, and notifications enable you to avoid missing important due dates or renewal deadlines. Not to mention, the contract’s entire history, including all changes and approvals, is tracked. 

The QuickDocs service lets you create 100% compliant documents using pre-approved templates in seconds without getting legal teams involved. This saves everyone’s time, and frees up the legal department so that they can focus on more high-value work without having to worry about compliance.

At the same time, AXDRAFT ensures that you always have the latest templates and contract versions during the drafting process. Additionally, documents are protected from unauthorized changes, while special approval and collaboration flows are supported, creating an environment for documents to be reviewed and approved in real time by multiple people simultaneously.

And for the cherry on top, there’s the new Collaborative Editor. You can easily redline documents simultaneously with your team members in real time, or you can assign a specific person to check certain clauses. This both eliminates the pressure of having to check the entire agreement while preventing unnecessary, unwanted changes. 

Staying compliant

Contract compliance is more than just satisfying local regulations and contractual obligations. It’s a complex, multi-stage process that requires careful attention and frequent audits. Without organized workflows, contracts can rapidly fall into chaos and disarray.

A well-designed contract lifecycle management approach can assist you in monitoring your contracts and adjusting to unexpected situations, whether it’s new regulations, turbulent market conditions, or something else. Furthermore, it facilitates any adjustments you’d need to make to your team and workflow.

Want to start saving a minimum of 2,493 hrs and $224K yearly on contracting?
Let’s talk!

Wrapping Up

Different companies may have different approaches to contract lifecycle management. AXDRAFT CLM is a tool that can be configured to your needs. It’s also easy to use, and once it’s implemented, it’ll quickly help you improve compliance and overall contract workflows. If you have any questions about how this occurs, our team is always there to help.

AXDRAFT is tailored to streamline contract processes thanks to its features like Collaborative Editor and QuickDocs, as well as auto-reminders and custom reports to help you to meet all key dates, fulfill obligations, and learn how contracts are faring. Book our demo if you’d like to discuss how AXDRAFT can improve your contract compliance.


What does compliance mean for a contract?

It means satisfying internal and external standards. It also means following the contract’s goals and milestones.

Why is contract compliance important?

The main goal of contract compliance is to ensure all stakeholders stick to the contract’s terms and conditions. It also helps increase efficiency and decrease different kinds of risks.

What is contract compliance monitoring?

It’s a regular audit to make sure that a contract’s performance is as it should be, and if any adjustments or fixes are needed.

How do you enforce contract compliance?

To ensure contract compliance, it is important to manage the whole contract lifecycle. That means you’ll need to create templates, set goals and metrics, conduct audits, and make adjustments. The whole process can be streamlined by using legal technology.

Stay in touch!
Subscribe to our newsletters

Leave a comment