The process of managing supply contracts is becoming increasingly complex, gone are the days that it was possible to cope with tracking them manually or even on spreadsheets. Every organization needs to know how well each contract is performing, where the documents can be found and the business risks they are exposed to. It is difficult to do any of this without the help of some technology.
The main aims of contract management are to get the best value from the supplier relationship while keeping costs down and limiting legal and compliance risk. There are more than 100 vendors that offer contract management cloud-based solutions either stand-alone solutions or as part of a full-procurement suite. Most address all or most of the activities in the contract lifecycle.
The first step in selecting a suitable vendor is to decide on the most important functions that you need. Some of the outcomes that you may like to have are:
- The ability to search the terms and conditions within a current contract quickly and easily
- A secure place where all current contracts are filed and expired contracts are archived
- Controlled safe and secure user access
- Transparent and fast approval processes including version control
- A faster way to draft contracts using a template library
- Scheduled alerts for contract expiry and renewal dates
- Administrative savings in both time and cost of resources
Vendors are offering a wide range of benefits and features, some of which may not be useful or relevant to you. Take time to consider which functions are critical now and what features you are likely to need in the medium term. Only pay for the functionality you actually need, at a price you can afford.
Tried and tested best practices
The International Association for Contract & Commercial Management (IACCM) identifies five best practices in contract management that can be facilitated by the use of technology:
- Use a central repository for all contracts
This home location should include current active contracts, contracts change history, and expired contracts. Visibility is at the centre of good contract management, an online real-time dashboard allows users to see inside the contract, providing them with the basis for fact-based decision making. This repository should cater for master service agreements, parent-child relationships and linked contractual agreements across the entire enterprise.
- Use standardised templates for consistency and ease of use
Contract documents should be drafted using internally agreed standard terminology and clauses. This authoring process can be speeded up by the use of pre-agreed templates which will create better quality final documents. Templates ensure compliance to standard clauses, save time and reduce the possibility of errors.
- Standardise the negotiation process
Negotiations are likely to cover both commercial and legal terms and involve many people on both sides of the transaction. Complex negotiations take time and effort and situations change rapidly. There are tools available that plan and monitor the course of the process, send reminders and notifications of meetings and minutes to participants, record drafts and manage version control.
- Build in compliance at every step of the process
Compliance to policy, workflow procedure and the use of approved signatories are all best practices that can be tracked digitally. Depending on the risk, value, and other factors, most enterprises have rules about who may approve and sign each contract. These rules are typically set out in a “delegation of authority” document and put into effect with e-signature solutions. Non-compliance with these rules is high risk and can lead to expensive litigation and reputational damage.
- Measure performance and track costs.
Each party must comply with its rights and obligations as specified in the contract. This entails continual monitoring of performance based on pre-defined key performance indicators (KPIs) such as pricing escalations, on-time delivery, quality issues and dispute resolution. This is a time consuming and resource-heavy activity.
What to look for in a contract management solution
Lack of online access and visibility into contract terms and obligations are two of the main challenges that users cite as important to them. Features that are the most useful are:
- A visual dashboard with personalised reporting
- A secure access facility that governs permissions by type and level of user
- A facility that allows for searches for wording, terms and paragraphs across all contracts company-wide
- A library of pre-approved clauses, industry-specific templates digital signatures and the facility for both parties to sign electronically.
- Alerts and notifications of milestones including price escalations, renewal and expiry dates
- An audit trail of all transactions including amendments to contracts
Leading vendors in this field are already developing mobile applications (apps) for contract management on-the-go. Ideally, you should be able to create, edit, approve or reject contracts from any device before too long.
Our advice is to make a list of functions you must have and define your expectations. Select a reliable, tried-and-tested vendor with a track record of success in your industry, especially if any system integration is required. Ask for reference sites and details of satisfied customers.
This article was first published on www.calibagroup.com.