When signing a contract, the four-eye principle is a widely used control mechanism to ensure that important documents, such as contracts, are reviewed and approved by at least two individuals. By implementing this principle, companies can enhance the accuracy and compliance of their contractual agreements. In this blog post, we will discuss the benefits of the four-eye principle in contract approval, as well as the importance of signatories and power of attorney in contract management. The Four-Eye principle enhance contract approval!

Improved accuracy and compliance

The four-eye principle ensures that at least two individuals review and approve a contract before it becomes binding. This additional layer of scrutiny helps to identify and correct errors, omissions, or inconsistencies that may have been overlooked by a single reviewer. As a result, the risk of non-compliance or disputes stemming from inaccuracies in the contract is significantly reduced.

Enhanced risk management

Contracts often involve complex legal and financial considerations. By involving multiple individuals in the approval process, the four-eye principle helps to ensure that potential risks are identified and mitigated before the contract is executed. This collaborative approach enables a more comprehensive assessment of the contract and helps to safeguard the interests of the company.

Increased accountability and transparency

The four-eye principle creates a clear trail of responsibility and decision-making throughout the contract approval process. By requiring multiple approvers, companies can maintain transparency and ensure that decisions are not made unilaterally. This increased level of accountability can help to prevent fraud, mismanagement, or conflicts of interest.

Signatories and Power of Attorney.

The role of signatories

Signatories are individuals who are authorized to sign contracts on behalf of a company. They play a crucial role in the execution of agreements and ensure that contracts are legally binding. Signatories are often senior executives or managers with the authority to commit the company to contractual obligations. The four-eye principle can be applied to the selection and authorization of signatories, ensuring that the responsibility for signing contracts is distributed across multiple individuals.

Allocating Power of attorney

Power of attorney is a legal instrument that grants one person (the agent) the authority to act on behalf of another (the principal) in certain specified matters, such as signing contracts. In a business context, power of attorney can be allocated to specific roles within the organization to facilitate the contract approval process. By granting power of attorney to multiple individuals and implementing the four-eye principle, companies can ensure that contracts are thoroughly reviewed and executed in a timely and efficient manner.

The Four-Eye Principle enhance Contract Approval – in a Digital Workflow

Following can be learned from Signavio.

• Simple Approval as a Starting Point: Initially, the process involves a basic approval where a reviewer must approve or reject a proposal. This step is critical for establishing the first layer of scrutiny​​.
• Assigning the Review Proposal Task: The workflow assigns the ‘Review proposal’ task to a designated reviewer role, providing the first two ‘eyes’ of the approval process​​.
• Adding a Second Approval Task: To adhere to the four-eye principle, a second approval task is added to the workflow. This ensures that another set of eyes reviews and approves the proposal, thereby doubling the scrutiny and enhancing the control mechanism​​.
• Managing Sequential and Parallel Approvals: The process initially assigns the two review tasks (‘First reviewer’ and ‘Second reviewer’) in sequence. However, this setup can be modified to allow parallel processing of approvals, enabling the reviewers to complete the two approvals in either order, thus adding flexibility to the workflow​​​​.
• Transitioning to Automatic Decisions: To streamline the process, the model shifts from a manual to an automatic decision-making approach. This change is necessary to adapt to the dynamics of parallel approvals and to ensure seamless workflow progression​​​​.
• Enforcing the Four-Eye Rule: To enforce the four-eye principle, it is essential to ensure that the two reviewer roles are not assigned to the same person. This is achieved by adding an ‘Assign reviewers’ task and setting up conditions to confirm that different individuals are assigned to each reviewer role​​​​​​.
• Automatic Checks for Reviewer Assignment: An exclusive gateway is added to automatically check that the two assigned reviewers are not the same individual. If the same person is assigned to both roles, the process loops back to reassign the reviewer roles, thus maintaining the integrity of the four-eye principle​​.
• Complexity and Flexibility: While this approach introduces more complexity than a simple approval workflow, it provides a structured yet flexible mechanism for approvals. Each step in setting up this workflow is incremental, building upon the previous step to ensure a smooth transition to a more controlled and secure approval process​​.
• By integrating digital processes with the four-eye approval principle, organizations can significantly enhance their operational control and compliance, ensuring a higher level of security and reliability in their business processes. This digital approach not only streamlines the approval mechanism but also makes advanced workflow control accessible to a broader range of users, democratizing the process of creating and managing complex workflows.

Conclusion – Four-Eye Principle enhance Contract Approval 

The four-eye principle is a valuable tool in contract management, promoting accuracy, compliance, and risk mitigation in the contract approval process. By integrating the four-eye principle with well-defined signatories and power of attorney allocations, companies can streamline their contract management processes, minimize the potential for errors or disputes, and ensure that contractual obligations are met.

You learn more about how Four-Eye Principle enhance Contract Approval in procurement processes.

Learn more about the Tactical buyer role in the bundle of courses The Sourcing Engine. The sourcing engine is build on three courses presenting the basics of a modern sourcing process. Learn about the key activities when preparing, negotiating and implementing a new improved supply chain.

Four-Eye Principle enhance Contract Approval also when placing a Purchase order. Learn more in LHTS’ course The Purchase Order, a basic course – part if the operative buyer role.

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Note: Illustration to the blogpost “The Four-Eye principle enhance contract approval” is created by Chat-GPT on May 24, 2024