Contract Management (1) : Are you in control of your business?

[florian_seebauer2]

This is the first of the three blogs regarding contract management. The series of blogs will cover :

• 1^st blog will discuss the customer pain points in contract management and explains why a contract management solution is so essential.
• The 2^nd blog will look into the best practices to adopt a contract management solution : http://scn.sap.com/community/sourcing/blog/2012/12/31/contract-management-2-adoption-of-a-central-co...
• The final blog will discuss the future trends in contract management

Customer pain points:

In many meetings with companies, I have heard quite often that contract documents cannot be found and the business partner has to be contacted and a copy of the contract has to be requested. For sure, it is not a good situations for the contract manager to admit not being in control of the company’s contracts and the need to request a copy of the own contract from a business partner.

At another client, I was told that during the contract negotiation and signature processes, somehow the different versions of the contract got mixed up and the supplier ended up with a different final version as compared to the final version in the buyer’s repository.  The fact, that the versioning process was out of control was discovered when the two business partners started to argue about the terms and conditions of the contract.

Let’s look into more details in the lifecycle of a contract document to discuss more of the pain points company have in contract management.

Already the contract creation process has potential issues:

• Contract template not accessible or only outdated version available
• Contract Management process not well structured and therefore inconsistent and email intensive process
• Lack of controls in case non-standard contract language is used
• Approval process not well documented and difficult to execute

In case of contract visibility, we already discussed the issue that many companies are struggling with finding their own contract documents. Additional shortcomings could be

• Contracts are organizationally dispersed, therefore high chance of redundant contracts
• No visibility into your contracts results into no visibility into financial and legal commitments
• Inability to track regulatory compliance
• No visibility into contract history

Last but not least, contract performance is difficult to achieve without an integrated system. Imagine, all the time and effort which was necessary to create and negotiate a complex contract and achieve good discounts. If the contract ends up in a filing cabinet or the desk of the contract owner and the contract is not used for contract execution a lot of time and saving potential got wasted.

• Poor contract compliance if PO’s, invoices and SLA’s are placed without considering the negotiated contract prices

• Weak contract renewals management
• Lack of performance information hinders re-sourcing of the contract

A final word regarding compliance, poor operational compliance is not the only compliance issue. Additionally, poor internal process compliance and insufficient legal compliance can expose your company to risk. How can you claim to be in control of your business if you are not in control of your contracts?

I hope I will see you as a reader of 2^nd part of my Contract Management blog next week with the focus on contract management solutions and best practice to adopt such a solution.