Digitization continues to impact global companies and their national mandates. And some businesses who see the need for electronic documentation adoption feel its push from their own suppliers and key partners as well.
“Where we are seeing the most change and perhaps the most adoption is in that repository area,” said Greg Dickinson, Chief Executive Officer, Hiperos, Somerville, N.J. “No longer are contracts the static, multi-form carbon document that is in some filing drawer and only gets pulled out once every two to four years for renegotiation. Now, they are actually living, breathing documents that are used as a framework for the underpinnings of the relationship with a third party. As a result of that, the contract needs actionable content—it needs to be able to have not just text but field elements that can be used for the business to actually manage the relationship.”
In managing relationships going forward, some questions companies may need to identify include ‘What are the locations of the given product or services? Where will they be delivered from or to? What aspects of compliance and risk must be factored in?’
“Some companies are starting to put contracts in place specifically around items that are key or critical components to their suppliers around the aspect of ‘What is the product that they need? What are the time frames that they need it in? At what quality level does the product have to be?’” explained Mickey North Rizza, Vice President of Strategic Services, BravoSolution, Chicago and former Gartner analyst. “So they’re looking at all the specifications and any types of issues that may come up. But above that, just to make sure they get the product, they might say ‘We expect demand and consumption to be A, B and C and we will monitor that in a separate demand pattern.’ So the way they send their demand information—it may be in the format of a rolling forecast with call-offs over a period of time or a separate contract that rolls into the main. It’s really looking at the demand and the consumption of the products that you’re trying to bring in.”
Companies in the financial services space, at the government level or in industries like healthcare—where meeting compliance and regulation mandates are not negotiable—may partner up with platform solution providers like Hiperos to manage their contracted partner relationships going forward. And as they continue to do so, a number of them may take abstracts from traditional contract management systems—“typically tied to the ERPs or to the spend management” according to Dickinson—and extract through current contract management platform models the attributes necessary to manage a particular relationship going forward.
“It’s almost mandatory that you execute relationship management or third-party management—especially in the financial services space,” continued Dickinson. “So the regulators—whether that be the FDIC or the CFPB or the Office of Comptroller Currency—they are actually gearing their audits to have financial services look at their use of contract management in ensuring that the necessary protection for a consumer or for a relationship are online and can be tied to the necessary controls that an auditor would look for.”
In fact, some non-regulated businesses also see the need for third-party compliance management to better manage the risk in doing business with that third party.
But where companies face issues—especially if a contract is static or not managed correctly—is not in the immediate timeframe but six to 12 months later when they find that the third party has been negligent in some areas outlined in the contract.
For example, in the healthcare industry, health insurance providers who are not government mandated may inquire to their suppliers if they offer health insurance to their employees. “And that’s written in the contract whether you do or don’t,” Dickinson explained. “And they have to keep that up to date for their business. It’s important to them that there are always things in the values of companies that are reflected in that contract—and they want to be able to measure that on an ongoing basis. Without some enforced electronic format, that becomes almost impossible.”