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Contract Management – A Strategic Asset
Alan Weintraub, Senior Director, Solutions Marketing, Hummingbird Ltd.
 An estimated 80% of business-to-business transactions are underpinned by legally binding contracts and agreements. Though many of these contracts contain clauses, terms, conditions, commitments and milestones that need to be tracked and managed over the contract’s life to maximize business benefits and minimize associated costs or risks, most organizations never actively manage their contracts during the agreement period.
Contracts are archived away in departmental filing cabinets never to be reviewed again until a problem arises or the contract has already expired.
Contract Management software enables an organization to be proactive in the management of its contracts. An organization employing contract management software has a deeper and more contextualized understanding of the risks, obligations and benefits associated with each contract.
Contract Management has been described as one of the next big technology investment areas for organizations of all sizes and industries. Why? For the simple reason that it can help organizations earn more while doing so more cost-effectively. According to Contract Management Magazine (November 2002) ‘Contracts Management software helps to control the two things at the centre of any organisation: Revenue and costs’
Organizations are increasingly looking to contract management as a way to keep bottom line costs down and increase net revenues from business-to-business transactions. At the same time, they are recognizing the value of Contract Management as they attempt to become compliant to corporate governance legislation and minimize exposure.
Publicly traded companies and in particular, organizations that operate in highly regulated environments must comply with increasingly stringent legislation and regulations surrounding the disclosure of corporate information. Contracts are used to manage financial information that is critical to meet the compliance regulations.
This is because so many business-to-business transactions, whether they are with suppliers, customers, partners, agents, or in other areas of the business are reinforced with legally binding agreements.
It is no longer satisfactory to produce an archived paper contract to a regulator or auditor when requested. Increasingly, organizations will have to provide evidence that they are in control of the entire contract process. This includes the contract creation, storage and management process to satisfy corporate governance legislation like the US Sarbanes Oxley Act, or the EU Directive on Corporate Governance.
There are five key components of an enterprise Contract Lifecycle Management strategy:
• automated contract creation,
• secure contract negotiation,
• electronic contract repository,
• automatic upload of relevant contract data to back-end systems,
• generation of proactive management reports and alerts to encourage compliance to committed contract terms and conditions.
Automated contract creation enables trusted end users to make use of technology to create contracts and legal documentation within pre-planned and pre-approved parameters. This will enable resource constrained groups such as Legal and Procurement to focus on the creation of approved contract templates and best practices.
Secure contract negotiation allows the Contract Manager to place a single copy of the contract into a ‘virtual’ repository for access and review by any trusted third party. New versions and changes to the content of the contract can be tracked and managed within the negotiation workspace.
The electronic contract repository provides a central electronic repository to store contracts and agreements. Paper filing cabinets or shared folders on a company network are not efficient mechanisms for storing sensitive information like contracts. The contract repository not only aids compliance to corporate governance legislation, but it will also enable authorized staff to instantly retrieve the latest version of any contract. Many different segments of a business may require, at some point in time, access to archived contracts.
An automatic upload to back-end systems of contract terms and data increases efficiency and reduces errors. Manually inputting data from a paper contract is not only inefficient and time consuming, but it can also result in costly errors. A Contract Management strategy should insist on the use of data transfer technologies that can automatically extract key contract data and upload it to relevant back-end systems as required without any manual intervention.
Proactive report & alert management provides actionable management information to staff members who require that information to carry out their business function. The terms of a contract can affect many parts of the business. Specialists like Sales managers or the Procurement team, will want to keep track of the finer detail relating to their principal transactions.
Other business functions like Finance, Legal, Operations, Customer Services, etc., may only need to view subsets of the contract data to either ensure that suppliers are complying with pre-negotiated terms or that customer commitments are being met so that the business is maximizing revenue while minimizing risk.
Contract Management systems help organizations streamline the contract creation and approval process, improve financial and contractual performance from suppliers and customers, maximize revenue performance by managing compliance and ultimately decreasing operational staffing costs. Typical improvement gains can include reduction in operating costs, shortened negotiation cycles, stronger compliance with internal or external policies and regulations, reduced staffing and higher revenues.
| Alan Weintraub, a Senior Director focusing on Business Solutions, with Hummingbird Ltd., is the former Research Director of Integrated Document Management and Digital Asset Management for Gartner. He has more than 20 years of experience in the information systems profession. He can be contacted by e-mail at: alan.weintraub@nyc.hummingbird.com
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