Ten Pitfalls of Current Contracting and Commercial Practice

Nice to see you again!  Thanks for joining me for the second of my two part series where I reflect on the information shared by Mr. Tim Cummins, President and CEO of the IACCM, at our recent chapter meeting.

For those just joining now, IACCM, also known as the International Association for Commercial and Contract Management, is the pre-eminent best practices organization in the contract management space.  In addition to being an industry pundit, their esteemed leader, Mr. Tim Cummins, is one of the most innovative and thought provoking speakers I’ve had the good fortune of meeting.

During his presentation, he highlighted the ten key areas where companies have the most difficulty in managing their contracts.  Throughout this week’s blog, I’ve taken the opportunity to review these pitfalls in the context of our product, Contract Management [.app] for SharePoint.  Given the depth and complexity of some of the pitfalls, I have taken the liberty of combining, and/or re ordering a few of these for ease of discussion.

Pitfall 1: Lack of Clarity and Scope on Goals

Do you make a list of goals that you hope to accomplish throughout your day? How often do you benchmark your progress against your goals?  According to the Wall Street Journal, goals should be both implemented and monitored within an organization to ensure progress.  The only way a goal can be achieved is if everyone clearly understands and seeks to accomplish the same objective.

In the realm of contract management, different organizations have different goals.  Often, these goals are directly related to where an organization may be in its contract maturity.  For those with newly implemented processes and tools, focus may be on quickly locating a contract, understanding its key terms and provisions, and knowing when the contract should be renewed.  For those with more mature processes, goals may include reduced contract cycle time, increased contract revenue, or reduced contract expenses.

Regardless of your organizational goals or where your organization is in its contract maturity, Contracts 365 supports the measurement and realization of such goals. From storing a contract in a central repository with the appropriate metadata tags to sophisticated graphing, charting, and reporting capabilities, our contract management software allows organizations to achieve and measure stated objectives.

Pitfall 2: Legal & Contract Teams Not Involved Early Enough

Attorneys, General Counsels and Contract Managers are imperative in a well-run contract management process. Their input and review is essential in guaranteeing that an organization is in compliance with the legal terms outlined in a contract.  Because these resources are often in high demand and difficult to schedule, they tend to not be involved in the process until much later.

With an automated contract lifecycle management application, this risk can be reduced.  For less complex contracts, self-service templates with pre-approved language and fall back provisions – created in advance by your legal teams – can be made available to those who need them. For more complex contracts, a well-supported negotiation process with automatic redlining, version control and alerting facilitates more efficient contract completion.  In both cases, the functionality provided by a CLM application supports a more active and efficient engagement by your legal team.

Pitfall 3: Failure to Engage Stakeholders

When stakeholders are not involved in the contract management process, there are a variety of negative downstream effects - lack of visibility into contract status, an inefficient or misguided approval process, unnecessary revision cycles, risky language provisions and missed deadlines.

Leveraging an application such as CM[.app] allows these issues to be avoided.  Contract status can be tracked directly through our Tracker or through email and system alerts. Basic, complex and unique workflows can be used to ensure that all appropriate approvals are gained. Language fall back provisions can also be pre-approved and made available to those negotiating the contract. This will prevent unnecessary revision cycles from taking place and risky language provisions will not be included in the contract without the appropriate approvals.  Stakeholder participation can be facilitated to ensure the efficient and effective completion of contracts within stated deadlines.

Pitfall 4: Protracted Negotiations

Revenue cannot be recognized and cash cannot be collected until the contract has been signed and product or services delivery has begun.  Protracted negotiations not only impact deal closure, they potentially compromise the deal as the counterparty has the time, opportunity and potential inspiration to work with a company who can more readily facilitate a sale.

Contracts 365’s automated contract lifecycle management application ensures that this does not happen.  Those involved in Sales can easily initiate new sales contracts from within Salesforce.com or the CRM where they live.  Negotiation can be readily facilitated within automatic redlining, email distribution and check-in check-out functionality for version control.  Once the contract is complete, final copies can be distributed via email for electronic signature.  Throughout the process, the current status of the contract can be easily tracked, and escalations can take place when bottlenecks occur.

Pitfalls 5, 6, and 7: Negotiations Focus on the Wrong Terms and Risks, Contracts Lack Flexibility, and Contracts Difficult to Use or Understand

Contracts are the tools by which companies and individuals do business with one another.  It is imperative that these contracts focus on the appropriate business issues and risks, and that they reflect the current needs of the organization.  Those who are participants in the contract negotiation or management process need to readily understand the key terms and provisions of the contract, where areas of flexibility exist, and potential options for compromise.

A sound contract management process is one which includes not only the establishment of standard contracts and templates, but also a systematic review of these materials to ensure that they continue to address business needs as well as current industry issues.  A contract playbook frequently exists for purposes of alternative language suggestions and pre-approved flexibility and compromise.

Contracts 365’s Contract Management Application, CM[.app], elegantly addresses these requirements.  Users can have access to a repository of contract templates – automated or otherwise.  These templates can be shared with the organization or they can be secured based on roles and unique access requirements.  Automated review cycles can be scheduled to ensure that the contracts are current and that they address important industry or legal changes.  Language fall back provisions, as well as a contract playbook, can be conveniently provided to those involved in the negotiation process so that efforts are not unnecessarily expended around the wrong terms or risks.  Greg Tennyson, Chief Procurement Officer for VSP Global and a long standing Contracts 365 client, summarizes his experience with Contracts 365’s solution as the flexible source of truth that they needed in a contract management system.

Pitfalls 8 and 10: Poor Handover from Deal Team to Implementation Team and Poor Post Award Processes and Governance

A considerable amount of time and effort goes into the negotiation process and closure of a contract.  Unfortunately, there are numerous occasions when these highly negotiated provisions are not communicated to the implementation team or to the team responsible for the long term management of a contract. This lack of communication creates considerable risk and missed opportunity for an organization. The importance of having a system in place for all team members to have visibility into key contract terms, updates, obligations and more is essential in guaranteeing that contracts are managed properly throughout their entire lifecycle.

Contracts 365’s robust contract dashboard provides easy access to key terms and provisions, supporting documentation (including children contracts and amendments) and obligations.  Our Content Extraction Module or CEM allows our clients and third party providers the unmatched ability to identify and pull key language provisions from any contract that they choose for ongoing management. Our alerting and reporting mechanisms ensure that key dates and deliverables are flagged and escalated for additional management attention, when appropriate.

Pitfall 9: Limited Use of Contract Technology

The final pitfall in poor contract management – and in our humble opinion! – the most onerous of them all is the limited use of contract technology.  Despite the many options available, your company may have no solution in place to assist with your contract management process. Or, it may have a solution with limited deployment or challenges in acceptance.  In any case, the impact to your business in not managing your contracts properly is severe.  Tim Cummins of the IACCM states that poor contract management costs companies almost 10% on their bottom line.  For all of the reasons previously stated, an automated contract lifecycle management application can deliver immediate ROI to your organization - while also increasing opportunity and reducing risks.

As an organization selects a technology, it is important to choose one which is user friendly, intuitive, easy to support, and addresses overall business requirements.  It should also have the flexibility to support unique organizational requirements which are critical for your organization. Continuous product innovation is also essential as the contract management arena is continuously evolving and becoming more complex.

And, as important as is the technology, so, too, is the organization with whom you do business. Your selected contract management vendor should be a true partner to your organization.  Throughout the implementation cycle, go live and on-going maintenance of the application, road bumps will invariably arise.  It’s critical that your vendor has not only the experience necessary to ensure your organizational success, but also the infrastructure and interest to do so.

To Close

James Dallas, a contributor to Fortune Magazine, says that managing change is the make or break in order for organizations to measure their success. States Dallas, “Leaders who successfully reshape their organizations are sought after and respected. Their organizations aren’t crushed by changes in their industries; rather, they find ways to leverage those changes."

Business initiatives and processes are always changing.  Material changes are taking place in the contract management space as contract management becomes a critical business function.  As Tim has suggested in his Ten Pitfalls, it is important to understand these issues.  And, as we are suggesting, it is equally important to understand how technology can support systematically addressing these pitfalls.

Next Week’s Blog

Get ready for next week.  Join us as we examine the story of a Western Australian Health Department official overspending on an IT contract by $40 million!  Your eyes are not fooling you, yes, $40 million!  Find out Contracts 365’s take on the issue and the proper techniques and initiatives that should have been implemented to avoid this disaster.  Stay tuned!