With data breaches on the rise, protecting your business's sensitive information is more critical than ever. This is especially true regarding your company's contracts containing confidential details about customers, partners, employees, and intellectual property. Poor contract management security can expose your business to legal, financial, and reputational risk, so implementing robust contract management and security software is essential.
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What is contract management security?
Contract management security refers to the systems and practices in place to protect the sensitive information contracts contain, including financial data, intellectual property, customer information, and other confidential data that could cause harm if accessed by unauthorised parties.
Robust contract security is essential for organisations of all sizes. Without proper security protocols, contracts present a significant vulnerability that can lead to data breaches, loss of trade secrets, privacy violations, legal issues, and damage to your brand's reputation.
Unfortunately, most companies focus heavily on securing emails, file servers, and other digital assets yet often neglect contract security. Contracts contain your most critical information but frequently sit in basic document storage or physical filing cabinets with little to no protection.
Contract management security aims to limit access to these essential documents to select individuals who need them to do their jobs, requiring you to implement technical security solutions and operational policies across your organisation.
The importance of protecting sensitive contract information
Contracts contain highly confidential details that you need to protect, including:
- Financial information: Contracts include sensitive financial data like prices, payment terms, discounts, and revenue splits. This information could prove very damaging if leaked to competitors or made public.
- Intellectual property: Development contracts, licensing deals, and supplier agreements contain valuable IPs you want to guard closely, like patented technologies, copyrights, trademarks, and trade secrets.
- Customer/vendor data: Contracts with customers and vendors often contain contact information, account details, and other private data that you must keep secure.
- Legal information: Lawsuits, liability clauses, and other legal details within your contracts need to remain private.
Without proper contract security, all this information is vulnerable. Some potential consequences include:
- Data breaches leading to leaks of sensitive data
- Loss of intellectual property to competitors
- Non-compliance with regulations like GDPR and CCPA
- Missed contract renewals, deliverables, and deadlines
- Unauthorised changes to contracts terms
- Legal issues, lawsuits, and damage to your reputation
Risks of poor contract management
Effective contract management is crucial for operational success and maintaining stakeholder trust. Many security risks may arise from subpar contract management practices, including financial losses and missed opportunities.
Importance of contract compliance
Failing to comply with industry regulations or contractual obligations can have severe legal and financial consequences. For example, non-compliance with GDPR when handling customer data and ensuring data privacy in the UK can result in fines of up to £17.5 million or 4% of your global annual revenue.
Lack of access controls
Without strict permissions limiting access to contracts, unauthorised employees or third parties may be able to view or modify sensitive documents. Granular access controls are essential.
Weak password policies
If employees have weak contract repository passwords or share logins, it becomes easy for data thieves to gain access to your contracts. Strong password policies are essential to any robust contract management security system.
Physical document storage
Paper contracts in filing cabinets can easily be lost, stolen, or damaged. And they make it difficult to track access, edits, or versions.
Decentralised contract systems
You can lose control over document security and versions when contracts are scattered across email inboxes, file shares, and thumb drives.
Collaborating on contract drafts via unsecured channels like email leaves you vulnerable to data leakage.
Lack of encryption
Without encryption, any breach of your contract repository risks exposing data. Encryption renders stolen contract data unreadable.
Missing audit trails
Limited visibility into who viewed and modified contracts severely hampers security incident response. Detailed audit logs are key.
How to carry out contract risk management
Implementing robust contract security requires adopting the right technology solutions and instituting sound operational policies. Here are the key contract management process steps to take:
Step 1: Centralise contracts into a secure repository for a robust contract risk management foundation
The priority is to consolidate all active and archived contracts into a central, cloud-based contract lifecycle management (CLM) system. This includes supporting documents like Statements of Work (SOW) and Certificates of Insurance (COI). Maintaining contracts in a single source of truth gives you the control you need to secure them properly and is the foundation of a robust contract lifecycle management process.
Your CLM platform should offer permission controls, encryption, audit logs, and integrations with your existing cloud storage. Make sure to migrate both existing and new contracts into the system to reduce the risks of poor contract management.
Step 2: Classify contracts into security categories for an efficient contract lifecycle management process
Not all contracts require the same level of security. Classify your contracts based on sensitivity level, such as high, medium, and low security. You can then apply security policies appropriate for each category to ensure an efficient end-to-end contract management process.
For example, contracts with financial details may be high security, while basic Non-Disclosure Agreements (NDA) are low security. Segmenting contracts allows precision in applying security controls.
Step 3: Implement role-based access controls to reduce internal risks of poor contract management
An essential step is implementing permission controls to restrict contract access only to authorised staff. Your CLM platform should make it easy to specify which roles (e.g. Sales, Finance, Legal) can access particular contracts or contract types.
For each security category, determine appropriate read-only vs read-write permissions by role, group, and user. Ensure admins can review and adjust clearances.
Step 4: Secure contract collaboration to boost contract management security
Collaborating on contract drafts via email and other insecure channels creates vulnerability to data leakage. So, consider moving collaboration into your CLM, using features like version control, private permissions, and audit trails.
Some steps you can take include requiring reviewers to submit edits through the platform, limiting the forwarding of contract documents externally when possible, and instituting data leakage precautions like watermarking for highly sensitive contract drafts.
Step 5: Embrace eSignatures to reduce procurement risk and improve contract management
Integrate your CLM with a compliant digital signature solution, like DocuSign, to sign contracts securely. eSignatures boost security by providing a detailed digital transaction record showing who signed what and when — thereby reducing procurement risk and improving client-side contract management.
Step 6: Train personnel on security practices to reduce the human-related risks of poor contract management
Implement security awareness training focused on your contract management processes, such as:
- Proper password management
- Avoiding unauthorised data sharing
- Reporting suspected breaches
- Following configured workflows
Training helps minimise security risks that stem from human error and builds a culture of security. Consider requiring refresher courses annually.
Step 7: Conduct regular security audits to improve contract management security
Regularly audit your contract management security measures to uncover any potential vulnerabilities in your processes, permissions, integrations, training, and more.
Audits help verify that protocols are being followed and configured properly. They allow you to identify and resolve issues before they result in a breach or data leak.
Reviews should cover permissions, encryption, penetration testing, improper access, incident response, and third parties. Make sure to schedule both internal self-audits and external audits by qualified professionals. Use the contract management audit report results to strengthen contract lifecycle security continually.
Effective risk management with future contracts
Contract data is your organisation's lifeblood but presents significant security risks if mishandled. Data breaches, IP theft, privacy violations, and legal liability loom large.
The good news is that you can lock down contract security using the right strategy without compromising business efficiency. A proactive approach will ensure you can keep your business running smoothly while protecting your most critical data. Don't leave contract security as an afterthought.
Implementing robust security processes and adopting a feature-rich contract management platform now enables effective risk management with future contracts down the road. Identify any vulnerabilities and start implementing contract management security improvements today.