As CEO or head of your division, do you feel you have to read every contract signed by your organization? Does this lead to a logjam on your desk of unexecuted agreements? Streamline your contract approval process by creating a policy that enlists the expertise of the company’s most trusted employees.
A Delegation of Authority Policy can streamline your company’s contract approval process and ensure responsible contract review by top and middle management. Here are some tips for implementing a Delegation of Authority Policy:
- Identify High-Risk Areas. Some contracts carry enough risk that approval should be reserved to the CEO or other C-suite executives. These vary by business but might include exclusivity commitments, confidentiality agreements, and significant capital expenditure commitments.
- Organize Contracts by Departments/Divisions. Typical categories include Finance, Sales, Purchasing, HR, and IT. We have found this to be a user-friendly approach, but there is nothing “legal” about a policy’s format. Do what makes the most sense for your business.
- Assign Authority Based on Dollar Commitment and Contract Length. Authority levels should be driven by employee expertise and established by title or functional/operational responsibility rather than by named employee. This authority needs to be consistent with what has been established by the company’s governing documents.
- Educate Employees. Distribute the policy company-wide. Talk to employees about the accountability that comes with their authority. Your legal team can help employees spot issues of potential concern, where senior management or legal should be consulted before approving a contract.
- Be Prepared to Revise. Revisit the Delegation of Authority Policy after 6 months and periodically after that to consider feedback from employees. Have operational efficiencies been achieved? Is there an opportunity for further improvement? Do any circumstances require clarification?
Delegation of Authority Policies are tools that, when implemented correctly, should improve a company’s contract approval process without sacrificing contract integrity. While these policies potentially expand the authorized employees who may commit to liabilities on the company’s behalf, the employees with new-found authority will likely feel more empowered and engaged and valued by the company.