The Contract Management Challenge

Manual processes mean most companies have problems just finding their contracts, survey reveals

Redwood City, CA  February 25, 2003  Enterprises are using manual processes to manage so many contracts these days that most companies said they frequently have problems just finding needed documents, and a majority of companies said they have lost 10 percent or more of their contracts and must ask their partners for a copy of the documents, according to a new survey.

The survey of about 100 Global 2000 companies, conducted among "C-level" executives and managers over a three-month period by contract management solution provider Nextance, revealed that the volume of contracts and the inefficient processes that companies are using to manage those documents are causing problems associated with visibility to those contracts, revenue and cost leakage, and risk management issues.

Overall, the survey indicated that the vast majority of companies do not have the desired level of control over their contracts, from initial contract creation through the lifecycle of each contract.

For example, 81 percent of companies in the poll said that just finding contracts was problematic, while 71 percent reported that a percentage of their contracts (up to 10 percent) were lost, and that they had to request copies from their partners. That's not surprising, considering that one-third (33 percent) of the companies reported that they keep their contracts in 10 or more locations across the organization.

In addition, 54 percent of companies said they had difficulty accessing specific terms within their contracts. And half of the surveyed companies said they were unable to analyze their contracts, such as for a spend analysis exercise.

Enterprises also expressed concern about possible revenue and cost leakage as a result of their manual contract management processes. For instance, 74 percent of contract management professionals said they were concerned about their ability to manage contracts through the entire lifecycle of the document.

In addition, 40 percent said their manual contract management processes were probably causing them to leave money on the table on the sell or buy side of their businesses  the dual problems of revenue and cost leakages. This could occur, for instance, when a computer company continued to deliver service to a customer for hardware covered under a service agreement that had already expired.

As for risk management issues, 71 percent of the companies listed contractual risk as a major area of concern. That's perhaps not surprising since 60 percent reported that they did not have a reliable system in place to alert key parties within the organization of a contractual risk, and 73 percent of respondents had no reliable process to update financial systems in relation to contractual risks.

Overall, 56 percent of the respondents said they do not track contingencies, and 65 percent said their current manual processes do not allow them to do a good job tracking interdependences  linkages between separate contracts.

Gopi Kallayil, director of strategic marketing at Nextance, said the survey revealed a high level of awareness among contracting professionals of the costs and risks of current manual processes for managing contracts, but he noted that these professionals also point to a lack of resources to deal with these issues.

Kallayil added that while early adopter companies already are seeing benefits from implementing new technologies to manage their contracts  he pointed to one Nextance customer that was able to "find" $25 million in additional revenues by more effectively managing its contracts  contract automation still has not been widely adopted. "We are still in the early stages," he said.

Nevertheless, Kallayil said that, in his opinion, on the procurement side of enterprises, purchasing executives are increasingly coming to view contract automation as a "must have" technology, particularly in businesses with complex agreements with suppliers. On the sell side, he said, sales teams have felt less urgency to automate contract processes, although companies with large numbers of contracts, complex contracts or both  such as telecommunications companies that might have millions of customers with varying contracts  are eying contract automation as a way of boosting revenues.

Finally, Kallayil emphasized that although the types of technology that providers like Nextance offer can give companies a good start on automating their contract processes, good contract management involves a healthy dose of process change within an organization.

For more information on the potential return on investment in contract automation, see the February 13, 2003, iSourceonline article "The Quick Payback from Contract Automation."

For more information on contract management automation, see the article "Digging Out from the Contract Clutter" in the January 2002 issue of iSource Business.