Obligation tracking is a systematic process of breaking down contracts into a pre-defined pattern (based on the user’s need) to provide insight – with mathematical clarity – into all that there is in a contract. Metaphorically speaking, it’s a process which enables the contract to talk and explain itself – in a simple and easily understandable manner – to the reader instead of the reader trying to analyze it. It eliminates the need for reading between the lines to interpret the contract and understand obligations.
Obligation tracking can be used to serve many purposes – the most helpful of which, as indicated above, is its ability to deliver and impart a clear understanding of the entire contract to its audience – who could vary from contract administrators to top executives, to sales staff or any other organizational personnel having no legal background or skills whatsoever.
In addition, obligation tracking is primarily carried out to achieve the following objectives –
• Mitigation of risks – By detection and assessment of vulnerabilities.
• Ensuring statutory compliance – By identifying obligations specific to the laws under which the entity operates.
• Meeting the timeframe for milestones and goals – By clearly recognizing the due dates associated to such milestones and goals.
• Enabling easy navigation across clustered data – By segregation (of usually a Word based contract into an Excel generated output) on basis of page, line numbers, clause numbers, tile etc.
• Clearly distinguishing parties’ rights and obligations – Which typically is the most critical requirement of this entire process.
• Flagging financial liabilities – The need to maximize revenue and profits and minimize costs, fees, penalties, etc. make them an indispensable attribute to be tracked independently.
• Elimination of “noise” – Often contracts contain boilerplate clauses which are thought to be imperative to maintain the integrity of contracts are nonetheless useless from a commercial standpoint. As such, they carry no significant utility for tracking.
Though obligation tracking is essentially just one component of the Contract Lifecycle Management process, it is an important and substantial exercise. Doing it well often requires a dedicated team of skilled resources who, with the aid of sophisticated tools and applications, track obligations by creating, developing and maintaining obligation grids – also known as an ‘Obligation Matrix‘. The time and effort that goes in preparing and maintaining these complex matrices is far less compared to what goes in knowing, understanding and managing obligations the conventional way. Or worse, not knowing what your obligations are.
Thus, it can be safely surmised that such parsing of contracts into matrices to track obligations is the most effective way of dealing with them – allowing anyone and everyone a clear-cut logical and objective view of information that is otherwise buried away.