contracts

How To Improve Your Contract Management in 4 Easy Steps

Posted on by Kyle McMurry

Fastest Way To Improve Contract Management

Quick:

What’s the fastest and easiest way to improve your company’s profitability by 9%?

According to research by the independent International Association for Contract & Commercial Management (IACCM), the answer is to improve your contract management. 

So what is contract management and how do you improve it?  

It’s been defined as “ The process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.”

The benefits of contract management include:

• Spend visibility:S Lets you know if you are buying from the right suppliers, at the right times, in the right quantities and prices.

• Risk reduction: Contract management ensures you are on top of vendor compliance and performance, so you can take appropriate action if needed. 

• Cost Savings: Having a system in place streamlines contract creation, authoring, and the negotiation process, making more it efficient and less expensive. In addition, software solutions have built in alarms that can notify you when unfavorable contracts are due to be renewed. This allows you to renegotiate unfavorable terms and prices. 

Then what is the fastest way to improve contract management?  Well, it’s actually simple. You need to have just two things:

• All your contracts in one place, so you have access. 

• An organized, systematic plan. 

Sounds easy, right? Yet shockingly, most companies lack a clearly defined contract management system and it costs them a fortune. According to some experts, many companies incur more than 50% of their costs in contracts. (In the case of the Oil & Gas industry this number can be as high as 70%).

So having an organized solution is essential. But how do you do it?

Step One To Improve Your Contract Management System

 The first step boils down to going through your entire organization, finding all of your contracts and getting them in one place.

Why?

Access. You need to have quick access to your contracts. You want to be able to click a button and find the information you are looking for immediately, versus searching through mountains of files and drawers to find it. Just doing this first step will save you hours of wasted time.

The ugly truth is that your contracts are probably scattered throughout the company. So you will need to go in virtually every department and find them. Once you accomplish this, you’ll need to come up with a plan. 

Step Two To Improve Your Contract Management System

The second step in designing your plan to improve your contract management is to determine how much data you actually need to track in your contract management system. The amount of information you need to have can vary greatly from business to business. Some companies will need tack the minute details of contracts because of stringent industry standards. While others only want to know the beginning date, the ending date, who is involved and the value of the agreement. The decision you make at this stage is crucial to the success of your system. If you try and track too much data or information that is non-essential and your system will be cumbersome and squander resources.  Not tracking a sufficient level of data and your system will not be effective. 

4 Questions to Improve Contract Management

4 Questions to make a better tracking decision for improved Contract Management

 

To help you make a better decision, here are four quick questions to ask yourself:

• What is the detail level you would expect to have in your contract management system?

• What is the level of detail that you absolutely must have?

• How many resources would you like to attach to your system?

• How many resources can you afford to allocate to your system?

Answering these four questions will help you come up with a contract management system that you can feel comfortable with, will work for you, and not waste your time and money. If you already have a contract management system in place, you can use the answers to improve it.

 Remember, at the end of the day the most important part is that you have access to all of your contracts -whenever you need them.  You’ll know where they are because they are either attached to files or they are in a database software. You can easily access all of your contracts and the important information in them. By following these steps, you’ll improve your contract management system, and in the process improve your company’s profitability.

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Scanning documents isn’t helping you go “paperless”

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You know the drill: to avoid losing hard copy documents, you scan and store documents for future retrieval and sharing. Problem solved, right? You are on your way to a “paperless office,” right?

Not quite. Unless your company has a protocol for what to do with important scanned documents (and contracts definitely fall into that category), then you may be making things worse.

Run-of-the-mill document scanning devices and applications help clean-up the piles of paper on the desks of the finance and administration departments. But scanned documents filed away in a folder (nested in another folder, of another folder) or drive can be forgotten, “mislaid” and overlooked as easily as paper documents.

And that’s dangerous. Who has access to these sensitive documents? Are they being shared across unprotected networks? Also, not centralizing these documents can leave different parties making different changes to the same contract document. Imagine the headache when a note is not entered on a centralized record that notes an important “make good” a vendor owes you. One department says it is owed something from the vendor while another knows nothing about it – and bills as a result of that.

Some large enterprises try to get around this common problem with document retention policies. But more often than not, applying a document retention policy depends on how well your tools do the job for you.

This is one of the better reasons to consider contract management software. Contract Assistant, for example, eliminates file chaos by:

  • Providing quick and easy access to important information
  • Centralizing a place for all contract records
  • Linking to or actually storing electronic versions of paper documents
  • Generating standard and custom reports
  • Sending automatic reminders of critical dates and more

With Contract Assistant, at least for contract documents and records, you would know there is one place to go, one central repository of information that can then be used appropriately. We can’t guarantee Contract Assistant would help your company go “paperless” (that’s between you and your fleet of printers to determine), but it certainly will help your electronic filing chaos.

Can you answer these 5 questions about your business’s contracts?

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Take a moment to think about your business and the vendor contracts that govern its operations. Can you answer these basic, yet crucial, questions?

  • Which is your most profitable contract?
  • Which is the least profitable?
  • Is your business paying for duplicated or overlapping services?
  • Which contracts are up for renewal?
  • Is your business already past the time to decline any auto-renewals?

If you can answer these questions quickly and confidently, congratulations. But there is a good chance that you don’t have an answer for some or even most of these questions.

It’s easy to think of contract management software as a “nice to have” administrative tool. But having a full-featured contract management tool will give you the kind of information you need to answer the above questions – and know a lot more about the true costs of contracts.

If you think of contract management software as a key reporting tool, you are closer to the mark than thinking of it as primarily “administrative” in nature. Reporting is a crucial step in the contract life cycle and one that can be automated and enhanced by using contract management software.

Contract Assistant, for example, has rich reporting functions. Knowing the importance of reporting to end users, Blueridge Software includes in the Standard Edition a library of starter report templates. At the PRO and Enterprise edition level, users get a rich starter library as well as a report generation tool – Report Designer.

Reporting even basic information on all your company’s contracts on a regular basis for review and analysis can really pay off. Depending on your management structure, contract managers may be required to report on the full spectrum of contract performance metrics, or may only be asked to deliver reports and notifications when exceptions are discovered. In either case, the information gathered from contract management software from the very beginning of a contract becomes the basis for all reporting, no matter the format or detail.

The flexibility of Contract Assistant, for example, allows for so much customization that you can gather data on select fields quickly and easily.  If you want to find out more about all the benefits of contract management software, download this complimentary executive summary report, “Contract Management Software – Reduce Risk While Saving Time & Money.”

How to get buy-in for a contract management software purchase

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Let’s assume that you’ve decided that your company or department needs contract management software. You’ve done your legwork, examined all the features, maybe you even took advantage of a 30-day trial.

But that may not be enough – there’s another step that’s highly recommended. For users who work in large enterprises, the true effectiveness of contract management software is magnified many times when there is full buy-in from key stakeholders. Contract management for large enterprises is rarely a one-department function, so wider interest for a solution will help you get to implementation quicker.

By sharing what you’ve learned about the way contract management improves efficiency and reduce risks (from missed contract deliverables, rising admin costs, etc.) you can also share the workload during roll-out.

To get enterprise-wide buy-in for a solution, consider the following tactic. Form a working group to examine the need for contract management:

  •  Get participation from likely hands-on users, but also those in departments most likely to use the information gathered from contract management software.
  • For possible end-users, try to expose them to a trial version or to participate in any live demos.
  • Be sure to record the working groups efforts to share with management (to document progress).
  • Get input on objectives/goals of centralized contract management from all stakeholders.
  • Ensure the goals go beyond administrative goals (for example: make contract info records easy to access) to specific financial goals (for example: document operating costs such as invoicing preparation time).
  • Have the working group prepare questions for a prospective vendor about key support needs beyond implementation (different users may have different ongoing needs).

While it could feel daunting to roll-out contract management at once to an entire company, forming a working group and “spreading the workload” among all the interested parties will make the job far easier.

Beware of the Evergreen Clause

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Unfortunately, some businesses only recognize the need for contract management software once a problem arises – when it’s too late to enact “an ounce of prevention.”

Here’s a perfect example: Consider the “evergreen clause,” or the autorenewal.

Investopedia defines the evergreen clause as: “A contract provision that automatically renews the length of the agreement after a predetermined period, unless notice for termination is given. Evergreens are often used for long term agreements such as memberships or maintenance contracts.”

How does this sneak up on the unsuspecting contract administrator? In an article on the website Mondaq, author Steve Dutton poses the situation of a business owner deciding to cancel the license agreement for a certain computer software which was purchased to improve productivity, but ended up not being effectively used.

Upon calling the vendor, the representative notifies the business owner that the license agreement does not allow a simple cancellation. Instead, the business owner is contractually obligated to continue paying for the software for another full year. The real culprits here are the terms and conditions of the software license containing the automatic renewal or evergreen clause.

Automatic renewals often come with a definition of when notice must be given to cancel a contract. The problem isn’t that evergreen clauses are inherently bad. It’s that notification dates for cancellation have a habit of being institutionally “forgotten” – unless there’s a serious problem.

Contract management software helps you shed light on these forgotten contracts in two key ways. First, you can customize notes and fields to record specific deliverables of vendor/service providers, thus giving you a history of performance. Second, you can set up automatic reminders for key renewal dates. This feature is in all Contract Assistant versions, and in the Enterprise edition you can even configure alerts to be distributed via email.

Setting an alert or reminder 60 to 90 days out from a renewal notice cut-off notice date should give you enough time to review performance and get input before contacting the vendor/service provider. At the very least, it may give your business the leverage it needs to alter a contract to meet your company’s needs better.

For additional discussion and recommendations about evergreen clauses, read this blog post by Law 4 Small Business.

It may not always be possible to avoid evergreen clauses, but you can certainly get ahead of any potential problems if you’re using good contract management software.