These questions may be equally difficult to answer. A well-implemented, automated contract authoring process can address these challenges, as well as brings the benefits of lowered legal and regulatory risk, a clear audit trail on the contract and faster time to realize contract value, especially when based on supplier solicitation activities. According to Aberdeen Research, contract creation cycle times can be lowered by 50 percent on average when using such a solution.
Some of the software capabilities required to support an automated creation process include the following:
- A request intake capability so that contracts can be created for all business activity, including one-off service agreements.
- A contract template approach that allows the organization to define different overview information for each strategic contract type (to be tracked, searched and reported upon).
- A contract process management tool to define the steps required to complete the contract and track the ongoing management of the contract.
- An ability to configure a dynamic draft agreement in a common word processing application with appropriate content, utilizing the latest approved legal language.
- Workflow to route the contract for review and final approval.
- Contract management tools that support versioning, comparing versions, check in/out, comments and attachments, and third party portal access.
This area of the contract management initiative should be prioritized if the company is focusing on process controls, if the current processes are not aligned, or if the company has recently experienced significant legal or financial exposure stemming from contract content not being well-managed.
Contract Performance Management
Last test — can you answer these questions about that same contract you thought of earlier?
- What are the agreed-upon milestones or service levels in the contract, and are they being met?
- How much spend was realized against the contract in the last year?
- Are employees using this contract, or are they going around it?
- Do your purchase orders and payments reflect agreed-upon contract pricing terms for goods and services?
Have any contract performance reviews been conducted, and how did the supplier or your company fare?
It makes perfect sense that if you don't measure and monitor the performance of your contracts, there is no way to know whether you're actually realizing their benefits. Having ways to enforce both internal and external compliance to your contracts is the only way to maximize and unlock the opportunities that have been identified.
Some of the software capabilities required to support contract compliance and performance management include:
- Clear capture of contract specifics such as line items, pricing, payment terms, deliverables and milestones.
- Ability to conduct performance reviews at the contract level, conduct audit activity and capture contract issues as they occur.
- An automated approach to managing master data and distributing and updating contract information to execution and transactional systems such as ERP, purchase order management and sales order management.
- Visibility into both transactional and aggregated contract usage information.
- Reporting and alerting based on performance thresholds and parameters.
Companies typically save this implementation step for last due to the level of effort involved, but in the end a long-term strategy to support contract performance management is critical to realizing contract value. Some organizations will consider this earlier in the project if they have recently completed sourcing activities and need to instantiate those contracts to realize savings quickly.
Figure 1: Stages of Typical CLM Solution Adoption
Practical Considerations for Success
How do you get going on a contract lifecycle management project once you've selected a software solution?
The first order of business is, of course, to convene a high-quality project team with influential leadership and an involved executive sponsor, strong business sense and technical savvy to define and drive the CLM project itself. Once the team members are in place, they will want to engage the various lines of business, functions and geographies that will be affected by the new solution to understand their processes, pain points, requirements, priorities and concerns. Engaging the business users is critical to driving change throughout the organization and ensures a successful project.