We invite you to read the column written by our Legal & Business Director, Stephanie Cruz, who discusses the importance of efficient contract management in strengthening corporate governance within companies.
Business relationships in Chile have become more complex in recent years, which has changed the nature of contracts. Companies today operate with more extensive supply chains, technology, and massive data processing, as well as suppliers and relationships that—even when conducted within our country—often involve parent companies, platforms, or counterparties located in different jurisdictions.
Added to this are greater economic volatility, regulatory changes, and growing demands regarding compliance, free competition, data protection, cybersecurity, sustainability, and liability toward third parties.
In the past, business relationships were typically more linear: one party supplied a product or provided a service, the other paid a price, and the contract primarily governed the term, price, breach, and termination. Today, a single relationship may involve service levels, performance metrics, software licenses, subcontracting, international data transfers, business continuity, intellectual property, environmental obligations, audits, insurance, and compliance protocols.
Therefore, companies today need to manage the entire contract lifecycle: planning, negotiation, internal approval, signing, execution, monitoring of obligations, amendments, renewals, termination, and closure. This requires coordination among the legal, financial, sales, operations, procurement, technology, human resources, and compliance departments.
Poor contract management can significantly impact a company’s costs. First, there are direct costs, such as cost overruns, duplicate payments, penalties, and interest, among others. There can also be a gradual erosion of margins when a contract lacks adequate mechanisms to adjust for inflation, exchange rate fluctuations, and tax changes.
The second group comprises operational costs. This is one of the most common mistakes: drafting contracts from an exclusively legal perspective, without considering the mechanics of the business and verifying that the obligations, deadlines, and metrics can be managed in practice.
Third, there are legal, regulatory, and compliance costs. The absence of adequate clauses regarding anti-corruption, conflicts of interest, data protection, or auditing can increase the company’s exposure to authorities, clients, and third parties. In fact, inadequate contractual oversight can contribute to a crime due to the failure to effectively implement an appropriate prevention model.
Finally, there is a reputational and strategic cost. A dispute with a critical supplier can affect operational continuity, customer relationships, the trust of banks and investors, or the ability to participate in bids.
Therefore, a contract is no longer just a document filed away; it is a structured source of information for managing the business, and its efficient management ensures the company’s effective fulfillment of its commitments.
Column written by:
Stephanie Cruz | Legal & Business Director | scruz@az.cl
