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.

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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


Top 7 most contentious contract terms

December 1, 2010

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.


Aligning Legal with the business

April 26, 2010

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.


Contract obligation management

January 10, 2010

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.

 
 

 


Contract Management and the General Counsel

October 28, 2009

Corporate-Counsel-Exchange-2009

Dolphin Software recently took part in the inaugural European Corporate Counsel Exchange conference in the Hague, Netherlands, which was attended by the heads of legal of many of Europe’s leading corporations.

A consistent theme of the event was of course the impact of the economy on the legal operations of companies in Europe, but also how this has forced legal departments to become much more efficient and business focused than ever before.

Aligning strategy and execution with the core business strategy is something that CIOs and IT Departments have heard for the last ten years, but it was surprising to hear the number of General Counsels urging the same message and to become ‘more visible’ in the business.

Topics like Litigation support, eDiscovery, Legal Spend Management and Contract Management appear to be the primary interest and focus areas for European GC’s in the next 12 months. 

With regards to Contract Management, it was surprising to witness so much support for ‘self-service contracting’, where the drafting of standard contracts and agreements is pushed out to business users through the use of contract automation technologies, where previously many internal legal departments would have insisted that all contracting is conducted within their own department.

With legal departments having to downsize, or cut their budgets, they are looking for new ways in which to deliver the same workload with fewer resources, and at the same time, demonstrate increased value to the business.  Contract Management solutions are well placed to deliver on these goals since they generally automate and control the contracting process, which up to this point in many companies, has remained a manual and inefficient process, while delivering true cost savings to the business by allowing contracts to be managed in the way that they were negotiated.

The bad news however, is that although economists and the media seem to be convincing us that the worst of the recession is over, the general expectation is that budgets for 2010 will continue to be cut, which will compel General Counsels to spend their money more wisely on products and services that add true value to their business, reduce inefficiencies and that will raise the profile of legal operations within the enterprise.


Technology solutions for In-House Legal teams … and the enterprise

September 18, 2009

In this day and age few General Counsel would imagine managing the legal affairs of their employer without the aid of technology.   However, legal operations inside public and private sector organisations remain largely manual, costly and inefficient due to the poor adoption of technology solutions to support their work.

It is not the fault of in-house legal teams in many cases.  It is actually a failing of the large enterprise software vendors, who have for many years, assumed that the needs and requirements for in-house legal teams were the same as those for large commercial law firms.  The clear feedback that we have received at Dolphin Software, is that they are not.

There are a number of key technology solutions that General Counsel in both the public and private sector need to consider and evaluate for their organisations.  These are:

  • Document and Records Management
  • Legal Matter Management
  • Contract Lifecycle Management
  • Time recording/billing (if you are considering implementing a cross-charging regime)
  • eDiscovery/Litigation Support systems

Looking strategically about how technology solutions can support the legal operations of an organisation, it is important to consider the needs and requirements of the legal function itself, but also how this strategy is going to impact the rest of the business.

There are a number of routes that IT and Legal teams can go down.  They can …

  • select best-of-breed vendors in each category
  • select a single vendor solution or technology platform that can span several core solution areas, while complying to corporate standards on IT infrastructure
  • attempt to develop their own in-house solutions (If you select this route, be aware of the hidden costs in building your own solution.   Management time required to design the solution, the cost of development, support and providing enhancements and updates are only some factors that can end up costing more than a Commercial Off-the-shelf solution).

Then there is the issue of the wider picture.  One critical error that Legal teams often make is the limited belief that solutions like eDiscovery or Contract Management systems are only to be used by legal specialists.  There are many other key stakeholder groups, in the contracting process, for instance, who could benefit from access to contract documents and management information.

In this age of regulation and risk management, the legal department is rapidly becoming the guardian of key technology solutions for the enterprise.  The General Counsel and the CIO need to work together in ensuring that the solutions that they evaluate and implement are the best and most effective for their business.