Contracts are the lifeblood that course through the veins of any business, breathing vitality into every relationship and transaction.

Yet, the art of managing contracts effectively can often feel like navigating a maze of complexities and time-consuming tasks. This is why you need contract monitoring checklists. These invaluable tools serve as steadfast guardians, ensuring that every facet of the contract management process is orchestrated with precision and finesse.

Contract monitoring checklists possess the power to save valuable time, minimize risk, and guarantee that contracts are handled with utmost efficacy. Let's explore the significance of contract management checklists and best practices to create a formidable contract monitoring checklist.

What is contract monitoring? 

Contract monitoring is the process of overseeing and ensuring that the terms and conditions of a contract are being met by all parties involved. This includes verifying that the goods or services provided are of the expected quality, that they are delivered on time and within budget, and that the parties are complying with any legal or regulatory requirements.

Importance of contract monitoring

By implementing effective contract monitoring, organizations can avoid costly mistakes, reduce risks, mitigate potential legal risks, prevent disputes and non-compliance, and maintain positive relationships with their clients or vendors. Moreover, contract monitoring can help companies with the following: 

• Ensuring compliance: By monitoring the performance of each involved party, any breaches or deviations from the contract terms can be identified and addressed promptly.
• Mitigating risks: By monitoring KPIs and contract milestones, potential issues can be detected early, minimizing the impact of any risks.
• Improving communication: Regular contract monitoring allows for a collaborative approach to problem-solving, thereby preventing disputes.
• Enhancing contract performance: Contract monitoring can help identify areas for improvement and can lead to the optimization of the contract terms.
• Providing accountability: Contract monitoring provides a framework for accountability and creates a sense of ownership, clarifying who is responsible for what and when.

Who is typically responsible for monitoring contracts? 

Contract monitoring is typically carried out by the contract manager, who is responsible for ensuring that the contract is being adhered to and that any issues or disputes are resolved in a timely manner. 

However, depending on the organization and its structure, contract monitoring might be done by legal, finance, or customer success teams. 

Stages of contract monitoring

Navigating contract monitoring successfully involves a series of clearly defined stages, each one bringing you closer to ensuring that every contract is executed smoothly, delivers value, and minimizes risk. Here’s a breakdown of the essential stages in contract monitoring, turning a complex process into manageable steps:

#1 Contract setup and baseline establishment

This first stage lays the groundwork. Begin by thoroughly reviewing the contract terms and conditions, noting key obligations, deadlines, and performance indicators. Establish a baseline by documenting all essential information, such as payment terms, deliverables, and compliance requirements. This setup serves as your foundational reference for tracking progress and holding all parties accountable.

#2 Performance tracking and compliance checks

Once the baseline is set, you’ll enter the ongoing stage of monitoring where performance and compliance are evaluated. Track key performance indicators (KPIs), assess service levels, and ensure all parties meet their responsibilities on time. This stage is where you detect any signs of deviation early—whether it’s a missed delivery, non-compliance, or quality issues—allowing you to address them before they escalate.

#3 Risk management and mitigation

Risks are inherent to any contract, but monitoring can minimize their impact. In this stage, proactively identify potential risks, like delays or budget overruns, and implement mitigation strategies. Regular risk assessments ensure that unexpected issues are promptly managed, preventing costly consequences and maintaining the contract’s value.

#4 Communication and issue resolution

Effective contract monitoring requires clear, structured communication. This stage focuses on regular updates and open channels between relevant stakeholders. Address issues as they arise, involving the right stakeholders for a collaborative approach to resolving disputes or misunderstandings. A solid communication plan, with escalation protocols, keeps everyone aligned and prevents minor issues from becoming major setbacks.

#5 Documentation and reporting

Detailed documentation is your safeguard for accountability and transparency. Keep records of contract activities, adjustments, and any changes made to the original terms. Periodic reporting keeps stakeholders informed of progress, compliance, and any emerging issues. With clear documentation, it’s easier to demonstrate contract adherence, protect your organization’s interests, and prepare for audits if needed.

#6 Review and optimization

The final stage is about reflection and improvement. Once the contract nears completion, review the entire monitoring process. Identify what worked well and what could be improved. Insights gained here can be applied to future contracts, optimizing your monitoring process and refining your checklist to prevent recurring issues.

Top 5 challenges in contract monitoring 

Contract monitoring can be arduous for several reasons - volume & complexity of contracts, inconsistent language, changing regulations, time constraints, etc. Here’s a dive into the top 5 challenges pertaining to contract monitoring. 

#1 High contract volume and complexity 

Organizations process contracts in bulk, so the volume of contracts requiring vetting is high. Consequently, contract managers and legal teams are always low on bandwidth when processing contracts. Additionally, certain contract types include complex technical terms. Hence, monitoring those becomes a critical challenge.

#2 Inconsistency in contract language 

In several companies, contracts are not standardized. This absence of standardization leads to an inconsistency in contract language. Therefore, it becomes tough for legal teams to compare contracts and spot mistakes.  

#3 Changing regulations 

“With rapidly evolving technologies, the legal framework tends to lag behind. Whenever there is any amendment in a related regulation, you should be able to suggest necessary changes to the product team to ensure compliance.”

~ Juliette Thirsk, Head of Legal at Peach Payments
The Counsel Corner: Streamlining Legal at a FinTech Startup

Regulations and laws are prone to rapid changes, making it difficult for the legal teams and contract managers to keep contracts compliant. 

#4 Technology limitations 

Required teams usually do not use cutting-edge tools to monitor contracts. Instead, they use manual methods, which are time-consuming, ineffective, and prone to errors. 

#5 Lack of visibility into the contract pipeline  

Legal teams may not have access to all the relevant data and information needed to monitor contracts effectively, impacting their ability to identify and manage risks. 

These challenges make contract monitoring difficult for legal teams and contract managers. What legal teams can do is strategise beforehand and take an informed approach to streamline contract monitoring. A common approach is to have a contract monitoring checklist. 

Contract monitoring checklist to monitor contracts effectively

Organizations leverage a contract monitoring checklist to stay on top of their contractual obligations and mitigate potential legal and financial risks. It is a document that outlines a contract's key terms and obligations and provides a framework for tracking compliance and performance over time. 

Contract monitoring checklists typically include contract terms, key timelines, reporting requirements, performance metrics, compliance requirements, risk management, communication plan, record keeping, and review and update schedules. Organizations can use a contract monitoring checklist to improve their contract management processes, reduce the likelihood of contractual disputes, and ensure that all parties meet their obligations. 

Contract monitoring checklist: What to monitor? 

The specifics of contract monitoring checklists vary depending on the nature of the contract and the organization's needs. Here’s what you should regularly monitor: 

• Contract parties
• Contract terms
• Contract timeline
• Reporting
• Performance metrics
• Compliance requirements
• Risk management
• Communication plan
• Record keeping 
• Review and update 

By having this contract monitoring checklist in place, it becomes easy for companies to stay on top of their contractual obligations, mitigate potential contract risks, and maintain effective communication with all contract partners.

#1 Contract parties

List the parties involved in the contract and their respective roles and responsibilities.

#2 Contract terms

Identify the key terms of the contract that need to be monitored.

• Deliverables: Products, services, or outcomes the parties agree to provide during the contract period.
• Milestones: Specific dates or events that mark the progress of the contract.  
• Payment terms: Payment schedule and any penalties/incentives for meeting or failing to meet performance standards. 
• Other clauses: Force majeure, confidentiality and non-disclosures, etc. 

#3 Contract timeline

Create a timeline of important dates and deadlines, such as the start and end date of the contract, delivery deadlines, and payment due dates.

#4 Reporting

By following pre-established reporting guidelines, parties can inform about progress and identify any issues that must be addressed. 

• Frequency: Check how often progress reports are generated - weekly, monthly, quarterly, or annually.
• Format: Check if the format of the progress report is as per the pre-determined reporting guidelines.
• Content: Check if all the required information is included in the progress report - a summary of progress against KPIs, an overview of milestones achieved, any issues encountered, and any recommendations for improvement.
• Recipients: Check if the progress report is sent to the right stakeholder - senior management, project managers, or other parties to the contract.
• Deadlines: Check if or not progress reports are submitted timely. 

#5 Performance metrics

Gauge the following metrics to see if the contract is performing as expected or not.

• Quality: Defect rates, customer satisfaction, or compliance with industry standards.
• Timeliness: Delivery of goods or completion of services, against agreed-upon deadlines.
• Cost-effectiveness: Total cost of the goods or services provided compared to the original budget.
• Productivity: Number of goods or services produced or delivered within a given period.

#6 Compliance requirements

See if the parties are complying with all legal and regulatory requirements. 

• Legal compliance: Labor laws, environmental regulations, and data protection laws 
• Regulatory compliance: Safety standards, licensing requirements, and financial regulations
• Contractual compliance: Deliverables, deadlines, and quality standards
• Information security: Data protection, IP, and confidentiality

#7 Risk management

Assess the potential risks associated with the contract and develop a plan to mitigate those risks. Ensure that the risks are clearly defined, measurable, and aligned with the objectives of the contract. 

• Financial risks: Risks related to non-payment or delayed payment and unexpected price increases.
• Performance risks: Risks related to quality, delays, or failure to meet specifications.
• Legal and regulatory risks: Risks related to non-compliance with environmental regulations or data protection laws.
• Intellectual property risks: Risks related to infringement of patents or trademarks.
• Cybersecurity risks: Risks related to data breaches or cyber-attacks.

#8 Communication plan

“My philosophy is that you should never go into a performance review where your team doesn't know where they stand or where they're strong and where there's opportunity. That should just be a validation of what's going on. All too often, people are surprised by the feedback they receive, because it hasn't been this ongoing dialogue through the whole year.”

Doug Luftman, Chief Legal Officer, Trust & Will
Building a Legal Function From Scratch: Insights from 8 GCs and Heads of Legal

Check if all parties are following the predetermined communication plan or not. 

• Communication frequency: Communication schedule - weekly or monthly updates and ad-hoc communications.
• Communication methods: Email, phone, video conferencing, or face-to-face meetings.
• Escalation process: Is there a transparent escalation process for reporting and resolving issues that cannot be resolved at the stakeholder level?
• Feedback mechanism: Do stakeholders have a feedback mechanism to provide feedback?

#9 Record keeping

Check if the mechanism to monitor and retain contract-related paperwork, including purchase orders, invoices, and change orders, is in place or not. Maintaining accurate records can help resolve several problems before they become significant issues. 

#10 Review and update

It is important to create a timetable for regularly reviewing and revising the contract monitoring checklist to guarantee that it stays up-to-date and useful in the long run. Certain parameters are prone to change; therefore, it is essential to review and update regularly. 

However, having a contract monitoring checklist in place may not be enough. Legal teams might have to go the extra mile to ensure that the contract monitoring checklist is effective and serves its purpose. Here’s what they can do. 

Also read: The Perfect Contract Risk Assessment Checklist

Contract monitoring vs. contract management

Although they sound somehow similar, contract monitoring and contract management play different roles in the life cycle of a contract. Contract management is a general process through which contracts are drafted, executed, and monitored with a view to ensuring that they deliver as per business expectations. It ranges from drafting terms to renewal or termination.

While contract monitoring is a focused area of contract management, it zooms in on the active performance, compliance, and adherence to the terms of the contract after its execution. This is the real-time day-to-day process by which each party delivers on their commitments as agreed upon, flagging and addressing issues directly as they arise.

Key functions in contract monitoring

Contract monitoring simply would involve keeping the contract on track, but a few core functions play an important role in successful monitoring:

• Performance monitoring: Regularly monitor KPIs and service levels to ensure that all parties across the agreement meet their obligations.
• Compliance oversight: Through constant verification of compliance with legal, regulatory, and contractual standards, the risk of costly penalties can be minimized.
• Risk assessment: Establish any potential risk that may occur within the terms of the contract and identify ways of managing those risks, including financial or operational.
• Communication management: Ensure clear, structured communication at all levels with established protocols to address issues as they arise.
• Documentation and reporting: detailed records regarding all activities related to the contract, including amendments and periodic updates, for full disclosure and accountability.

6 Best practices to fine-tune the contract monitoring process

To ensure consistency, reliability, and quality in the contract management process, it is essential to streamline contract monitoring. Here are a few best practices that could help legal teams with standardised approaches and guidelines for monitoring contracts, reducing the likelihood of errors, inefficiencies, and non-compliance. 

Also read: Contract Monitoring: 6 Best Practices for Legal Teams

#1 Understand what you want to monitor and define clear KPIs

“KPI’s need to be adaptive. They give insights to our board, who are not sitting with us day in and day out, as well as the management team that oversees the business regularly. I’m always looking to finetune the parameters, especially since legal and legal ops wins can be difficult to quantify and separate from another department. For example, I look for legal conferences and other legal-only access points to funnel deals to Papaya and add to our specific KPIs.”

Jesimin Berman, Director of of Legal Ops and Compliance at Papaya Global 
Streamlining Legal Processes: Advice from 7 GCs and Heads of Legal

As a pre-ritual, legal teams should objectively define the parameters that they want to monitor in any given contract. On top of that, they should also define clear KPIs to monitor the performance of contracts. By doing so, legal teams can allocate resources adequately and productively monitor contracts.

#2 Assign dedicated contract managers

Contract monitoring is a crucial and long-term process. If contract monitoring tools are not implemented in the company’s tech stack, legal leaders should hire dedicated contract managers to monitor contracts. By doing so, they will be able to monitor contracts effectively and optimise the bandwidth of other members of the legal team.

#3 Set up a contract monitoring schedule

Setting up a contract monitoring schedule ensures that contract monitoring activities are conducted regularly and systematically, minimising the probability of missed deadlines, overlooked issues, and non-compliance. 

#4 Establish channels for effective collaboration & communication

Effective communication and collaboration between cross-functional teams can go a long way in monitoring contracts, and there will be improved visibility into the contract pipeline. With clear communication channels in the system, legal teams will be able to understand and address the potential challenges of stakeholders better.   

#5 Centralise contracts

Centralising contracts enables legal teams to access and manage contract information from a single location, reducing inefficiencies. Centralisation also enhances collaboration, improves data integrity, and provides legal teams with a holistic view of the organisation's contractual obligations and risks.

#6 Use CLMs and other relevant tools for automation and analytics

Using CLMs can help legal teams automate a lot of mundane contract monitoring tasks and also help with analytics. It also becomes easier to track contract performance KPIs and manage contracts better. With all contracts centralised and standardised, the likelihood of errors reduces significantly.

‍