Can legal do a better job at supporting sales contract management?

The International Association of Contract and Commercial Managers (IACCM) are currently polling legal and contracting professionals to record their thoughts and opinions on how contract management is handled in the companies that they work for.  One of the early conclusions of the survey (which can be accessed here:  https://www.surveymonkey.com/s/StateofSalesContractManagement), is that many sales and commercially focused staff still view Legal as being too risk averse and a cause of inertia in the commercial or sales process.

Perhaps, Legal would argue, that if they are not going to be risk averse and cautious, who else in the organization is going to be?  On the other hand, with quarterly sales targets to meet, it is faster (but thorough) contracting that is required to facilitate risk managed, but commercially optimized deals.

Contract Management software solutions, like Dolphin Contract Manager do have a key role to play here.  The contracting process for many companies can be manual and inefficient.  Technology based solutions that support the contracting process can reduce contract cycle times and allow key stakeholders, like Legal, to add value in the right places and at the right time, instead of having to become involved in all transactions that tie up limited legal resources.

Self-service contract authoring, where non-legal users, like sales teams, are able to create tailored contracts and agreements by completing intelligent questionnaires is a major development in corporate contract management systems.  Previously technology that was used by law firms to automate the creation of standardized contracts, is now available to free up legal resources so that they can focus on the exceptions and non-standard contracts.

Legal clause libraries that allow legal language to be formatted in to reusable objects and then used to speed up new contract drafting or to be inserted in third-party contracts during contract negotiations, also play a significant part in empowering key business stakeholders in the contracting process, while legal maintain an oversight role.

Providing a central electronic repository for contract documents with version control and security profiling would seem obvious, but it is surprising to see how many companies exercise little or no control over where contract documents are stored.  Without strict control mechanisms in place, an organization will soon lose control over contracts and commitments contained within them.

Post-award contract milestone and obligations management is typically lax in many organizations, and it has been suggested that perhaps legal advisors take an overly conservative and risk averse stance when the focus of the contract is on its worth as an insurance document in preparation for when there are breeches, rather than as an outline document detailing the commercial relationship between the two parties.   After all, over 60% of commercial litigation matters now relate to contract disputes.

If legal resources can be freed up to focus on non-standard and exceptions and if there is an efficient and effective way to proactively manage contracted milestones and obligations, then perhaps we will be able to see the legal team being able to spend more time overseeing the contracting process and adding value where it is most needed.

Dolphin Software has recently published a new white paper entitled Why contract management should be a strategic imperative for your business, which can be downloaded here: http://www.dolphin-software.com/lp_cm_whitepaper.htm

Post-award contract management becoming more adversarial

In a recent blog post by Tim Cummins of the IACCM, he observes that members of the international body of Contract and Commercial Managers that the IACCM represents, have noted that contract negotiations are becoming more adversarial and relationships between customer and supplier, increasingly one-sided.

This is despite efforts in recent years by the IACCM and others to promote win-win based collaborative commercial relationships.  It would seem that when economic times get tough, buyers of goods and services will revert back to old practices of pushing for the lowest cost for the highest quality.  Contracts that were negotiated before the recession, with long term goals in mind, are now being amended and changed to incorporate changes in payment terms, early terminatation clauses and other buyer-centric conditions.

Recent research by US law firm Fulbright & Jarowski would appear to back this observation up, as new research published by the firm, now indicates that over 60% of corporate litigtation is related to contract disputes.

Technology cannot change human behaviour, but contract management software solutions can have an important part to play in the development of long term win-win relationships between customers and vendors.  Contract Management systems provide key business stakeholders on both sides of the commercial relationship with the right data and information to make sure that contracted commitments and obligations are adhered to; and if they are not, how to go manage amendments to contracted terms in the least disruptive way.

Visit www.dolphin-software.com to read more about how best-in-class contract management software can improve the management and productivity of relationships with your key customers and suppliers.

Download a free whitepaper on why Contract Management should be a strategic imperative for your business here: http://dolphin-software.com/lp_cm_whitepaper.htm

Top 7 most contentious contract terms

Each year, the International Association of Contract and Commercial Management (IACCM) publishes a highly popular annual list of the most commonly negotiated contract terms.  The 2011 list is being compiled at the moment and legal and contracting professionals are invited to provide their input by following this link:  https://www.surveymonkey.com/s/2011TopTenTerms

A list of leading contentious contract terms that have a higher propensity to lead to conflict and litigation is an interesting alternative deliverable to come out of the submissions received so far from this year’s Commonly Negotiated Terms survey.  In the latest Fulbright & Jaworski Litigation Trends survey, it is suggested that over 50% of corporate litigation arises from contract disputes.

If General Counsels are to try to reduce the cost of litigation, then they may be advised to take note of the following list of IACCM contentious terms:

1. Delivery/Acceptance (cited by 43% )
2. Price/charges (38%)
3. Change management (33%)
4. Invoice/late payment (29%)
5. Performance guarantees/undertakings (28%)
6. Service levels (27%)
7. Scope/goals (23%)

It is interesting to note here that the most popular IACCM contract clauses (confidentiality, IP rights and IT security) do not appear to be invoked in corporate litigations.

It can be argued that with more effective contract management, most or all of the contentious clauses listed here, could be managed and addressed before they become an issue.  Dolphin Contract Manager’s contract obligations management functionality, where key commitments and obligations can be identified and distributed to key business stakeholders, play a key role in ensuring 100% compliance to contracted terms and conditions.

Managing contract terms and commitments will be critical following the Government spending review

The United Kingdom, like many countries, is straddled with an unprecedented level of debt.  The UK’s debt currently stands at over £900 billion ($1.4 trillion), or £33,000 for every person in employment.  In an attempt to bring this national debt down to a manageable level, David Cameron’s government will publish the results of its long-awaited Spending Review on the 20^th of October.

The Spending Review will highlight areas where costs can be saved in central government departments and local authorities.  The United Kingdom will join counties like France and Ireland and introduce draconian austerity policies to reduce the national debt.

Much has been reported about Government quangos being abolished, defence cuts that will deliver new aircraft carriers, but with no aircraft and a winter of discontent with public sector workers planning widespread strikes in a move to resist the cuts.

Sir Philip Green’s report that was published last week provides an insight in to some of the areas of government where significant cost can be saved, namely more effective procurement and supplier contract management.

There is no doubt that if you are a department head or a manager in a central government department, local authority, university or hospital, you will be under more pressure than ever before to reduce costs and expenditure.  It is likely that spending cuts will lead to more services being outsourced, which will only lead to greater pressure to manage external service providers even more closely.

Contract Management software solutions should be able to offer significant value here.  Not only do Contract Lifecycle Management solutions help to streamline and control the contracting process with external suppliers, they also provide invaluable tools to make contract oversight and performance something that can be controlled and measured. 

If an outsourcing agreement includes complex obligations and service level agreements (SLAs), these can often be missed or poorly managed.  Solutions, like Dolphin Contract Manager, have been designed to make contract obligations and commitments more visible and better controlled.  A National Audit Office report last year highlighted over £300 million in savings in central government IT contracts alone, through better contract management. 

The British government should absolutely look to cut unnecessary cost from budgets, but it should also look to use technology in a smart way to improve the efficiency and effectiveness of government procurement at the same time.

Capturing your legacy contracts

It is the question that every Chief Financial Officer wants to know, but the issue that every General Counsel wants to avoid:  How many contracts does your organisation have and what is your total risk exposure?

This is such a hard one to answer because once signed, contract documents often end up in a variety of paper and electronic formats and in a multitude of document repositories (Windows file shares, document management systems, employee’s computers, paper filing cabinets, to mention a few) and the terms, conditions, obligations and commitments that were negotiated as part of those contrats are hidden from the Finance, Legal and Contract Management teams who need to keep track of them in order to avoid costs and maximise value from contracts.

While Contract Management software solutions have brought a great deal of automation and control to the contracting process, they often rely on contract milestone data to have been extracted at the point of contract creation or to already exist in some kind of structured format (ie a spreadsheet or database) in order to provide the alerts and actionable reports that  allow contract professionals to manage contract milestones effectively.

If legacy contract documents have been stored without this structured milestone metadata being captured, then organisations have two stark choices to make about their legacy contract archives:

• Leave them as they are
• Manually extract the milestone data (and scan paper contracts, if necessary)

The first option clearly leaves the organisation open to any potenial risk that may exist within the contract environment – a point that is increasingly being identified by financial audits as a failure of internal control mechanisms.

The second option is often seen to be complex and costly.  Scanning and manual profiling of contracts can be a time consuming and expensive option.

So what is the solution?

In September, Dolphin Software will change the way that legacy and third party contracts are managed on an enterprise scale forever.  A revolutionary artificial intelligence-based module to Dolphin Contract Manager, called Dolphin AutoCapture, will allow companies for the first time to be able to discover where contracts have been saved throughout the enterprise, auto-capture key contract milestone data and upload legacy contracts and metadata in to the Dolphin Contract Manager system – all at a fraction of the time and cost of doing this work manually.

For a preview of Dolphin AutoCapture, please contact info@dolphin-software.com

Aligning Legal with the business

Last week, Dolphin Software attended the Corporate Counsel Exchange event in Brussels, Belgium.  Despite the logistical difficulties of getting to Brussels as a result of our volcanic ash-laden skies, the event was well attended by the General Counsels of Europe’s leading companies.  We wanted to highlight a number of the key themes and issues that arose from the event.

The loudest and clearest message was that the Legal function should aim to become more aligned and integrated with key business processes.  We find this slightly ironic as an IT software vendor because we have been hearing the same message coming from industry analysts and business leaders to align company IT functions with the business for the last ten years – Some may argue whether this has been truely achieved or not.  So, now it is the turn for Legal to be in the business spotlight.

The second key theme to emerge from the Corporate Counsel Exchange event was the issue of staff morale and motivation in the legal department.  Perhaps the issues of business alignment and staff morale are inexorably linked?  It may be argued that if the corporate legal function was less reactive and took a more positive and proactive approach to embedding legal best practices in to core business processes, then the issue of business alignment and staff motivation could be improved.

The third theme to arise from the event was the adoption of legal technology solutions to improve legal operations.   Legal Spend Management and Contract Management software solutions were high up on the shopping lists of the delegates.  When you think about it, other legal-orientated technology solutions, like Matter Management, Legal Spend Management, and eDiscovery solutions may make legal operations more efficient and cost effective, but do little to align the legal function to business processes.  

Given that the contract process touches so many internal departments and stakeholders, we would argue that General Counsels should embrace the new generation of Contract Management software solutions and begin to ‘own’ the contract management process to demonstrate the proactive and positive impact that Legal can have on the business.

The IACCM and other commentators have long argued for a single ‘owner’ of the contracting process, since many organisations have not been able, until now, to identify a central influential authority figure to own this business critical process given the large numbers of other stakeholders in the process, like Procurement, Sales, HR and Finance.

How can contract management software help align Legal functions to the business?
In some regards, the contracting process has become the last key business process to be automated.  Contract management for many organisations remains manual, disjointed and inefficient.

Dolphin Software recently undertook some market research in to the way that organisations handle the contracting process today.  We found that the majority of companies followed a process similar to this:

• Business users call or email the legal department when they want a new contract to be drafted
• Internal legal staff spend 5-7 days on average extracting further information from the contract requestor and drafting the first version of the agreement using MS Word based templates or by copying terms and clauses from previously created contracts
• Draft contracts are sent via email as a rudimentary workflow system for internal review and approval.  This creates multiple copies of the contract document and elongates the contract cycle time.
•  Contracts are stored in a variety of storage locations: paper filing cabinets, user desktops, Windows file share drives, or document management systems
• Contracts are managed by spreadsheets, when they are managed.

Contract Management software solutions are able to automate and streamline much of this process by providing legal and business stakeholders with the tools to be able to create contracts in a rapid and efficient way, to speed up the contract review process through the use of workflow, to provide a central electronic repository for contract documents and a central database for contract related data and then to provide managers with real-time alerts, KPIs and management report to ensure that all terms, obligations and commitments are adhered to.

With an efficient contract management process, reinforced by the use of Contract Management software, the legal team can control, but delegate much of the work associated with contract management, but importantly, show the business how legal based solutions can have a direct and positive impact on the operations of the business.

“Only 50% of contracts are counter-signed” …

This staggering claim was made by the General Counsel of a global Marketing Services agency that Dolphin Software met earlier this week and highlights the very real issue facing legal teams and contract managers around the world.

Perhaps this is a statistic that not many General Counsels will admit to, but it is a well known fact that, despite all of the time and effort that goes in to the drafting and internal approval process for contracts and agreements, once a contract is sent to a third party (customer, partner, supplier, etc) you lose almost all of the control that you had. 

For many companies, contracts are drafted manually in Microsoft Word, emailed as attachments to internal colleagues for reveiw and approval and then emailed to the external party.  This is where things can often go wrong.  The process is inherently inefficient.  By emailing contracts outside of your organisation, you are effectively giving up any hope of controlling the contracting process.  You are dependent on the external party following your guidance on timelines, information security and amending drafts – not to mind the administrative burden of having to deal with mutiple versions of draft contracts been sent back to you via email.  In fact, the external contract negotiation phase in the contacting process is one of the biggest causes of delay in contract cyle times.

Lets face it, it is inconvenient to print out contracts, sign them, and scan them.  Many signed paper contracts sit on the desks of managers for days, and in some cases, weeks before they are forwarded on in an email or uploaded in to a contract repository.  This is bad news for commercial contractors who are looking to conclude business and bad news for purchasers who are looking to bring a new supplier on board.

A new generation of contract management software solutions, like Dolphin Contract Manager, aim to make this process easier for contracting parties and more efficient.  Rather than attaching draft contracts to emails for internal approval, many contract management solutions facilitate this process through a managed approval workflow process, where managers access a single copy of the contract that is stored in a central repository; and rather than emailing external parties, secure external workspaces can be created so that contract documents can be uploaded and external parties can collaborate and negotiate amendments to contracts in a secure and time-controlled environment.

Digital Signature solutions, like CoSign from Arx, can also play a big part in reducing cycle time by allowing both internal staff and external parties to review contracts electronically and digitally sign them without having to print, scan and upload.

It is no wonder then, that contracts that are sent to third parties are often not counter-signed and returned.  The current way of doing things is just too inconvenient. 

Is this an issue for you too?  Take part in our poll below:

Contract obligation management

If you were to disect the contents of an average contract, you will likely find a mix of  legal clauses, terms and conditions … and obligations.  Obligations that either you want a supplier or vendor to comply to, or obligations that you commit to from a customer or other third party.

Why is it then that contract obligations get such poor air-time from legal departments and other stakeholders who are tasked with contract management activities.

From Dolphin Software’s experience, Microsoft Excel appears to be the de facto contract data repository for most in-house legal departments, where key contract milestone data is held in a spreadsheet in an attempt to provide more structure and control over the tracking of contract terms and conditions.  Spreadsheets become limited in their ability to manage contracts when the volume of contract data gets too much, when managers expect to be proactively rather than reactively alerted to a key contract event or when you need to find the original or electronic copy of the contract in a hurry.

So what about contract obligations data and information – are these held in these spreadsheets alongside contract milestone data, like key dates, contract parties, monetary values, etc.?  In most cases, the answer is no.  This is probably due to the fact that the owner of the spreasheet is rarely the same person who is personally responsible for executing or overseeing the process of contract obligation management.

Contract obligations can include anything from service level agreements and delivery times to customer service targets and can be directly linked to penalties for non-performance; or even bonus payments for achieving targets.  This is what NASA has to say about contract obligation management:

Unrecorded or inaccurate obligation record keeping can distort the accuracy of available appropriation balances.  Failure to record obligations and adjustments in a timely manner increases the risk of overobligation and the risk that program officials will not have accurate information to use in decision making.

A contract obligation may be identified by a legal specialist or a contract manager, but in most cases the responsibility for ensuring on-time delivery or vendor invoice accuracy is not that of the contract manager, but of other business colleagues. 

Effective contract management systems should be able to provide greater visibility and control over the contract process by not only providing a more logical environment to manage contract documents and milestone data, but also an environment where contract obligations can be tracked and adhered to.

Contract Management solutions, like Dolphin Contract Manager, allow obligations to be allocated to business users, who are then automatically alerted when a relevant obligation is due.  Best-practice procedures and KPIs can be linked to contract obligations and these should form part of a comprehensive programme of contract obligation management.

 

 

 

IACCM research: World recovery shows patchy progress

2009 has been an ‘annus horribilis’ for many, with the deepest recession and toughest trading conditions in living memory, that nobody had accurately predicted; but a new survey published by the IACCM (International Association for Contract and Commercial Management) indicates that market conditions are beginning to stabilise.

More than half of the top contract negotiators and managers who were polled by the IACCM expected economic conditions to improve in the next six months.

The research shows that 50% of the respondents noted that they were still experiencing significant pressure to reduce or renegotiate prices on existing agreements, with the same proportion of contract professionals entering in to new contract negotiations.

However, the IACCM research indicates that much of this new activity is due to buyers entering in to negotiations with vendors to switch incumbent suppliers in an attempt to reduce and streamline procurement spend. 

The big casualty of the economic recession seems to have been corporate ethics – with 34% of the survey respondents suggesting that ethical standards in contract negotiation had fallen since the beginning of the recession.  The main ethical issues at stake here are:

• customers who unilaterally extend payment terms
• unreasonable pressure to cut prices on existing agreements, and
• overselling by salespeople to win business

Many companies are now looking ahead to what 2010 will bring and best-in-class organisations are already positioning themselves to take advantage of new opportunities to streamline their contracting processes as trading conditions improve.   This will lead to a flurry of activity to improve and streamline contracting processes with tools, like Contract Management solutions, that help to automate and manage contract commitments and obligations more effectively.

If you are planning your 2010 budgets right now, don’t forget to include a contract management software project in to your strategic plans.

The IACCM research was conducted in September 2009 and surveyed 13,000 business negotiators and contract management professionals from 2,000 companies worldwide.

Can technology play a role in easing the skills shortage in Contract Management?

Just as Contract Management was gaining the strategic recognition that it deserves in streamling the contract process, managing contracted risks and costs and providing greater transparency in both public sector and private sector organisations, there appears to be a major problem looming in the industry. 

Recent comments by US President Obama and Geri McLeary from the UK Office of Government Commerce would indicate that although policy and intention might attempt to make government contracting with external product and service providers more efficient, there appears to be a significant skills gap in the market for experienced Contract Management staff.  It is feared that the shortage in Contract Management skills could have serious implications for the effectiveness and success of government Contract Management strategy.

Although technology can never truly replace the value of an experienced human being, it can at least play an important role in the future of contract management, by allowing Contract Management specialists to do more with fewer resources and by sharing the burden of managing contract risks and obligations with other key stakeholders within the organisation.

A second generation of Contract Lifecyle Mangagment software solutions is able to make Contract Management specialist’s lives easier by automating and managing the key stages of the contract lifecycle process.  Contract Management software reduces the costs and risks associated with contracting by streamlining the contract drafting and approval process, providing a single repository for contracts and associated documents, provide secure workspaces for external party collaboration and by allowing contract management specialists and non-specialist staff – who may be in other functions of the organisation, to have access to real-time management reports and alerts, so that contract obligations, risks and milestones can be managed across the organisation more effectively.

So, if you are a Contract Manager and you are not already using a Contract Management system to streamline your workload and to communicate the value of your work to the key stakeholders in your organisation, perhaps 2009 is the time when you should start to evaluate the market for Contract Lifecycle Management software?