The top terms when negotiating contracts

March 9, 2012

Contract terms“Disagreements over acceptance or delivery are the number one cause of contractual claims and disputes. So it is not surprising that the parties to a contract focus so strongly on the question of who will be liable for the consequences of failure.” So says the opening statement of the International Association of Contract and Commercial Management’s (IACCM) report “2011 Top Terms in Negotiation”.

Each year the IACCM conduct a survey to establish the most frequently negotiated terms and conditions of contracts. For many years, the top three have consistently been:

  • Limitation of Liability
  • Indemnification
  • Price/Charge/Price Changes

Now this raises a question – if so much effort is placed on these three elements of a contract, then surely these must be important to an organisation? Why else would they expend the effort to negotiate the terms into the contract to begin with? But therein lies a problem – perhaps there’s a need to change behaviours going forward, but what about the hundreds, maybe thousands or even tens of thousands of contracts that are already in place?

Does any organisation truly have control over these top terms for contracts that have perhaps been in place for many years? Contracts that have renewed many times and may have been the source of many a price hike!

Are such organisations getting a fair deal, at least in terms of the contracts that they fought so hard to negotiate in the first place? Probably not is the common answer that we see. If you don’t know what’s in the contract, or even how many contracts are still effective and binding, how can you possibly know if the terms you sweated to enshrine are working for your benefit?

Dolphin Software  specialises in locating, analysing and reporting on contractually binding documents by first ensuring, through a contract discovery process, that all contractual terms are fully understood. For example in M&A environments, the top two terms identified by the IACCM, were also among the top terms that our clients requested in our add on M&A rule pack. (cDiscovery Metadata M&A Rule Pack) Make sure you understand the entire contract landscape of your organisation.

The full report, “2011 Top Terms in Negotiation”, is published by IACCM (www.iaccm.com).

The IACCM study was undertaken in the period December 2010 – April 2011 and the results are based on input from 1,123 organisations, representing more than 8,000 negotiators. Individual contributors came from procurement, legal and sales contracting functions in more than 60 countries. Input typically represents large international corporations.


A single source of the truth – If you are not in control of your contracts, you are not in control of your future

February 24, 2012

A single source of the truth - If you are not in control of your contracts, you are not in control of your future

As information is the most important asset for many industries and organisations, the race to manage information, in a proactive way has never been more challenging. The biggest challenge of all emanates from the sheer volume of information inside any organisation today.

Over recent years, contract management processes within global enterprises have become increasingly important and more complex. Many drivers have contributed to this change, such as increased business-to-business transactions and the need to lower supplier risk, due to potential corporate litigation and penalties for breaching industry regulations.

A major challenge for most is poor visibility into contracts and a lack of tactical and strategic intelligence, combined with the fact that contracts today typically do not reside in a central repository. More likely these contracts reside in multiple locations, in both digital and hard copy files, in paper archives, and even in some cases, outside the organisation’s physical boundaries.

Contract visibility creates a paradox for most organisations. On the one hand this requires management and monitoring of access and protection to ensure accuracy of data. To ensure integrity, contracts need to be locked down from a security perspective. But, on the other hand, contracts must be accessible to support the business and to make sure the contracts are adhered to, with visibility both inside the organisation, and at times, also for parties outside the organisation.

It is not hard to imagine and appreciate the challenges this could create in large or midsize organisations, with thousands of contracts spread out across major divisions/departments, over geographically disparate locations. The issue of contract visibility, security and risk management is beyond the scope of management by humans, with only fragmented manual processes to support them.

Contrary to the famous saying, “What you don’t know can’t hurt you”, this approach to performance management leads to “under-the-radar” problems, hidden costs and liabilities, which can remain unobserved within an organisation for years. These time bombs can have major impacts in reducing profitability; by increasing cost through inefficiency and leaving the organisation open for unsuspected disputes or litigation.

The picture doesn’t need to be so dark, there is hope and help for all. The Aberdeen Group has in a recent customer study http://www.seal-software.com/aberdeen_group_press_release.php shown what Best-in-Class organisations do compared to the laggards. The study outlines some very pragmatic and straightforward actions that in most cases are readily achievable and provide a rapid return on investment (ROI).

Once an organisation has implemented a contract life cycle management (CLM) system, that provides both total transparency and visibility to contracts and their key metadata, together with some well defined processes for review and approval of contracts, you have created a Single Source of the Truth!


Why Contract Discovery is a strategic imperative for 2012 planning and budgetary processes.

November 24, 2011

Right now, most organizations are trying to finalize budgets and plans for 2012 and it’s more challenging than ever. These times of financial turmoil and uncertainty put unprecedented pressure on revenue planning, cost-control and investment during 2012.

Critical planning assumptions will be based on the judgment of which contracts can bring in revenue and what cost has been contracted already.

Knowing and understanding all of your contracts is vital to your organisation being able to plan proactively and accurately.

A monumental effort goes into creating contracts and negotiating favorable terms and conditions; without systematic controls in place much of this negotiated advantage is squandered.

Budget and planning are critical to your business and yet many companies still lose control of their contracts and pay the price. The objective of tightly controlled budgets and controls is to put the business in the driving seat;. the worst scenario is to discover an unavoidable contracted cost that has not been included in the new budget. I think we’ve all been there.

Can you answer the following questions?

  • Do you have visibility of all contracted costs?
  • Which customers have the right to terminate their contracts this year?
  • Which supplier contracts are due for renewal; can you terminate or re-negotiate?

Poor contract visibility creates lack of tactical and strategic intelligence
Contracts today typically don’t reside in a central repository and are not accessed via formal retrieval procedures. More likely, they reside in multiple locations, in both digital and hard copy, often outside the companies’ physical boundaries.

Contract management creates a paradox for most organizations. On the one hand, contracts must be accessible to ensure data accuracy and integrity, contractual compliance and monitoring, with the flexibility for the contract owners to make revisions, addendums, measure contract performance and support internal and external audits. On the other hand,data protection, contract access monitoring and security is of paramount importance.

Large and midsize organizations have thousands of contracts spread across countries, divisions and departments. It’s not hard to imagine the scale of the challenge in pulling together the relevant contract information that proactive business planning requires.

Resolving the issues of contract visibility, security and risk management with fragmented manual processes is a recipe for failure.

Ineffective monitoring, reporting and management of compliance 
Most companies have not implemented a system to monitor contracts from a compliance and financial perspective. The lack of such a system typically results in rear-view monitoring and ‘brushfire management’ with little chance of avoiding increased operational cost and risk as consequence of non-compliance.

Inadequate analysis and follow-up of contract performance
“What you don’t know can’t hurt you,” might be a successful strategy for your personal life, but in business it’s a strategy for going out of business! This haphazard approach to performance management leads to under-the-radar problems of hidden costs and liabilities that can remain undetected within a company for years. These time bombs can have a crippling effect by reducing profitability, increasing cost through inefficiency and leaving the company exposed to unexpected disputes and litigations.

So how do we avoid these problems and address the challenges surrounding contracts?

“What you can’t measure, you can’t manage.”

This classic performance management quote is the corner stone of a proactive contract management solution. While some contracts may still be simple many that are pivotal to the day to day running of the business are multidimensional. These complex contracts have tremendous impact on the bottom line and a company’s competitive position in its industry. Proactively managing contracts requires a system with the following key functionality:

  1. Discover: Automated discovery of existing contracts currently in both paper and digital form. Search for key terms and load into contract management system.
  2. Store: Central secure searchable electronic repository for all contracts
  3. Report: Sophisticated management reports and alerts connected to electronic calendars.

The above is a minimum requirement for you to be in control of your budget and destiny during a challenging 2012.

To learn more about our unique and market leading solution of Contract Discovery and how it can help you within a couple of days, take a look at our online demo.


New white paper from Dolphin explains why managing contract obligations is important to any business

May 19, 2011

Dolphin Software has published a new white paper that examines how contract obligations can affect business risk and the bottom line.  The document, which is available to download free from the company’s website, also suggests best practice techniques for managing contract obligations and the role that the new breed of contract lifecycle management systems can play.

Download the white paper at:  http://www.dolphin-software.com/news_contract_obligations_wp.htm

Says Dolphin Software’s Founder and Chief Marketing Officer, Ronan Lavelle: “The phrase ‘contract obligation management’ may not sound very exciting, but it has huge implications on a business.  When a working relationship is set up – for instance, between a supplier and a customer – they agree the parameters: the ‘ought to’, ‘must do’ and ‘should do’ elements, which are then documented in a contract or agreement in one form or another.”

“Since Gartner estimates that 60-80% of all business transactions are governed by these agreements, we can safely assume that contractual obligations play a significant role in defining the way most organisations work with third parties.  Contract obligations are at the very heart of an organisation and will have a direct impact on performance, compliance and profitability.”

5 reasons why contract obligation management matters:

  1. Risk mitigation
  2. Avoidance of litigation
  3. Better relationships with suppliers
  4. Increased performance & operational efficiency
  5. Reduced costs and increased profitability
Download the white paper at:  http://www.dolphin-software.com/news_contract_obligations_wp.htm

Managing contract obligations across the enterprise

March 23, 2011

For many organizations around the world, contracts and agreements govern the way that they conduct business relationships with external parties, like customers, suppliers and partners.  In order for business relationships to be effectively managed and for your business to extract the maximum potential and value from your contracts with external parties, it is necessary to track and proactively manage contract milestones and obligations effectively.

Contracts invariably contain two types of data that need to be tracked and managed:  Milestone data (like critical dates, contract parties, contract values, currencies, etc.) and obligations or performance-related data.

While some companies may capture contract milestone data in spreadsheets or databases, it is relatively rare to come across businesses that adequately track and enforce compliance to contract-related commitments and obligations.  One reason for this may be the fact that historically, Contract Management has suffered from a lack of strong enterprise sponsorship and ownership.  We are now observing an increasing number of General Counsels taking on this mantel on behalf of the business to drive through ownership and responsibility for contract-related obligations and risk management.

Contract obligations may be applied to both your business as well as the external party and may include conditions that need to be complied with or tracked to adhere to corporate governance or industry regulations, quality commitments, performance targets, payment terms and schedules, etc.

Dolphin Contract Manager treats contract obligations as dynamic tasks that can be created, classified and allocated to the relevant business stakeholder who will have responsibility for ensuring that the specific obligation task has been adhered to or complied with.  The system includes a unique closed-loop compliance funtion allowing contract managers and business executives to monitor compliance to contract commitments and obligations and to provide the senior management team with management information about the status of compliance to contracted commitments and obligations.

To understand more about the importance of managing contract obligations across the enterprise, why not register for Dolphin Software’s free-to-attend web seminar on Tuesday the 12th of April 2011.  Further information can be found at:  http://dolphin-software.com/lp_contract_obligations.htm


Understanding your contract landscape

February 24, 2011

Understanding your contract landscape should be the first key stage of an enterprise contract management strategy.

Contracts are central to the way that business is conducted. As business-to-business transactions become more international and complex, so too have the contracts that support those transactions. Contracts contain a myriad of milestones, commitments and obligations that need to be identified and tracked in order to manage contracts effectively.

Lost or hard to find contracts
Unfortunately for many companies, much effort is put in to the negotiation of terms and conditions and less attention to what happens to the contract once it has been signed. Contracts that should be proactively tracked and managed end up lost or hard to find in file shares, computer desktops and other repositories.

Three key questions to ask yourself
Here are three questions that should be asked as a litmus test to assess the level of visibility and control over contracted commitments:

  • Do you know exactly how many active contracts your company has?
  • Do you and other key stakeholders in your company have visibility of all contract milestones, commitments and obligations?
  • Can you demonstrate to your senior management team that all contract related commitments and obligations have been complied with?

For most General Counsels, there are two options to address the issue of legacy contract visibility:

  1. do nothing
  2. conduct a time consuming, complex and expensive audit using specialist external consultants.

Dolphin AutoCapture – the legacy contract discovery engine
Dolphin AutoCapture is the first legacy contract discovery engine that uses search and artificial intelligence-based technologies to:

  • Rapidly locate lost or hard to find legacy contracts in Windows File Shares and computer desktops
  • Automatically extract key contract milestone data from contract documents
  • Present key contract related data to senior managers in a simple management dashboard.

Dolphin AutoCapture automated contract audits are significantly faster and cheaper than conducting manual audits with external specialist consultants.

Understanding your existing contract landscape should be the first stage in your contract management strategy.

Free webinar
Join Dolphin Software for a free-to-attend web seminar to find out more.  Visit http://dolphin-software.com/lp_contract_landscape.htm for further information and to register.


Internal Controls audits and Contract Management

February 3, 2011

Infraco, the South African government-owned Broadband and long distance telecommunications provider, has been cited in a recent Deloitte audit report for a failure in internal control processes in the company’s procurement and contract management environments.

“Although there are set policies, procedures, guidelines and processes to effectively effect the contract management process, we noted in many instances that these are not complied with, unintentionally or otherwise”, stated the Deloitte report.

An increasing number of companies all over the world are failing internal controls assessments conducted by independent auditors as auditors become increasingly concerned over the lack of visibility and control that many companies have over existing contracted commitments and overall contract management procedures.

The majority of companies put most of their effort in to the negotiation of contract terms and conditions, but do not dedicate the same level of attention and oversight post contract award.   This is largely because legal and business executives still do not consider contracts to be mission critical or strategic to their businesses.  For many, a contract is viewed as an insurance policy for when things go wrong.  Clearly auditors and industry observers, like the IACCM, see this as an outdated view and one that will only lead to increased scrutiny by auditors and regulators.

Contracts are strategic documents that outline how two parties are to collaborate with each other and the terms and conditions that govern that collaborative relationship.  For those companies that are able to manage and control their contracting processes efficiently, greater competitive advantage can be achieved through cost savings in the pre-award contracting process and better exploitation of contract terms, conditions and obligations in the post award process.

Dolphin Software would argue that the most effective way to bring about total control of the contract management process and ensure that contract obligations are properly complied with is to follow clearly defined contract management procedures, to appoint a senior executive to oversee contract management from a strategic position and to automate inefficient manual processes and control contract milestones and commitments more effectively with technology.

CFOs will rapidly understand the strategic importance of effecive contract management if their auditors refuse to sign off their accounts.

**24 February 2011 – update**

Broadband Infraco CEO and Non-Executive Director resign

Dave Smith, CEO of Broadband Infraco, the South African state owned entity tasked with bringing down the cost of broadband, and Non-Executive Director Tumi Magasa have resigned with immediate effect as a result of their recent contract management woes.

In October last year audit firm Deloitte was commissioned to conduct an urgent internal audit “to review the controls in relation to the contract management function, evaluate the adequacy and effectiveness of key operational and financial controls, and test compliance with the applicable legislation, policies and procedures”.