Realising Greater Value from your Contracts

Contract Lifecycle Management can help maximise revenue, minimise costs and reduce risk

Most organisations are unable to manage their contractual relationships effectively. As a result, they are unable to realize the value that they have negotiated.  Effective management over the lifetime of contracts enables the organisation to maximise the revenue-generating potential intended, minimise the costs of negotiation, minimise spend, reduce risk through poor wording of terms and prove compliance.

Research published by the International Association of Contract and Commercial Managers (IACCM) in February 2009 (www.iaccm.com) suggests that managing contractual commitments and obligations is more important in an economic downturn.

Managing contracts is nothing new and Gartner Group estimates that 60-80% of business-to-business transactions are governed by legally binding contracts. Most organisations have put in place some sort of contracts management policies but, people invariably forget about the contract once it is negotiated and signed.  In many cases they end up in a departmental filing cabinet or an archive offsite. Even if they are stored electronically, the document still has to be found, retrieved and read to establish key terms and renewal dates.

Technology has been very poor at supporting this vital management process. Crude spreadsheets have been widely used to log details of contracts and commitments. However, these are cumbersome and the volume of contracts logged soon exceeds the realistic scope of the technology.  I once came across a large Utility company that had previously tried to manage 10,000 contracts through a single spreadsheet.

Some organisations move to databases, which allow filtering and rudimentary reporting, but flounder because there is no control over the documents themselves. There is no repository and no standard operating procedures to show to regulators.

Even document management systems offer little management support once the contract has been signed. Organisations can spend months negotiating contracts, tying up top managers, legal staff and specialists, but the major problems start when the contract is signed.

Organisations are increasingly looking more strategically at the whole contracting process. They want standard operating procedures and software to support them. Standard operating procedures are vital to control who can negotiate and approve contracts; to protect the organisation against unscrupulous suppliers putting in over-advantageous terms; or over-optimistic or maverick sales staff offering uneconomic prices or discounts.

Technology solutions have recently started to come of age and viable enterprise-wide contracts management systems are now being successfully implemented. They are designed to support the entire process of creating, reviewing, approving, storing, negotiating and managing legally binding contracts.

These systems can handle all types of contract, not just suppliers and customers. They cover human resources, including contracts of employment; commercial, especially revenue-generating contracts, such as alliances, partnerships, joint ventures and licensing; and property contracts, such as buying, selling, renting, leasing and sub-letting.

A Contract Lifecycle Management system essentially needs to be able to manage and automate each stage of the contract process, including:

·         Contract authoring

·         Internal review and approval

·         Contract repository

·         Third party negotiation

·         Reports and alerts

A Contract Management system should be simple to use for the business user, yet support them with sophisticated underlying clause libraries, powerful search and business analytics. Along with specialists in the organisation, such as legal, procurement and finance, they have instant access to documentation, management information and alerts. The Contract Management system will produce reports of all contracts for which the manager is responsible that expire in the next three months or financial year and provides alerts in good time as each approaches its renewal date.

The system reduces costs by automating the drafting process and eliminating expensive internal and external legal time. Once signed, it assists cost control through reporting actual contract spend against forecast and provides supplier performance data. Increased control over terms reduces the risk of increased costs through unrealistic terms, including ‘evergreen’ auto-renewal on the other party’s terms.

The powerful and intelligent reporting allows more aggressive terms to be negotiated, as compliance can be monitored and enforced. Such terms could include early payment discounts, timeline penalties and performance bonuses. This enables the organisation to maximise the potential value of the negotiated terms and conditions over the life of the contract through revenue opportunities or cost savings.

Most of all, the document management features behind a contracts lifecycle management system allow the organisation to prove to regulators and contract partners that it has complied completely with all its contracting process and obligations.

Contract Lifecycle Management software has come of age at a time when organisations are seeking to standardise their contracting and reporting procedures and to extract greater value from contracted relationships.  By gaining control of contract processes the organisation can manage contractual liabilities and ensure complete compliance with regulations. This will create value by maximising revenue, reducing costs and mitigating risks.

Ronan Lavelle is CEO of Dolphin Software, a provider of a Contract Lifecycle Management solution for the Microsoft SharePoint platform.

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