THE FOUNDATION OF A CONTRACT
- Forecast expected revenues
- Control procurement costs and not to exceeds
- Manage suppliers and customers
- Establish service levels
- Protect intellectual property
- Mitigate risk
When not managed properly, contracts almost always underperform their revenue potential on the sell side, raise costs on the buy side, and increase all manner of legal and compliance risk. In fact, failure to manage contracts can cost organizations billions of dollars every year.
Moreover, contracts often underperform for reasons that many not be obvious. Take, for example, the maintenance contract of a telecommunications company that included payments for supplier materials and equipment when used on site. Contractual incentives were designed to motivate the supplier to complete work ahead of schedule, but this never occurred. Instead, the supplier kept tools continually on site and profited more (nearly $50 million USD) from the pricing mechanism that inadvertently rewarded this than it would have from the incentives.
Contributing to the dire need for effective contract management are significant pressures over and above the volume and inherent complexity of the contracts that must be managed.
Regulations that can require companies to establish and document business control procedures for tracking and reporting material business information grow more rigorous every year.
Globalization increases the types and complexity of contracts as well as the risks inherent in trading relationships.
Licensing, channel, and warranty agreements are increasing in number and complexity.
CONTRACT LIFECYCLE MANAGEMENT
From organization to organization, and frequently department to department within the same organization, there are variations in how the contract lifecycle is defined. Nevertheless, the following lifecycle stages exist in some form or another.
- Manage obligations
Contract Lifecycle Management (CLM) is the process of controlling, coordinating, and streamlining all stages in the contract lifecycle. CLM helps companies optimize contract performance, especially in procurement and sales. The tools of contact lifecycle management enable Procurement Directors and CFOs to; reduce costs, more accurately forecast revenue, and improve compliance.
With CLM, contract terms and conditions can reflect the key metrics that measure supplier and performance. Integrating CLM with operational platforms such as WorldERP’s SpendManagerPro™ or other enterprise resource planning solutions enables the vendor, customer, and contract item information to be integrated into accounts receivable and payable systems in a seamless, automated, and error-free process.
As important as CLM is for enhancing contract performance, its greatest long-term value to the enterprise may be associated with risk management. Although CLM is not a risk management system per se, it greatly improves contract visibility, control, and reporting, which enables legal and regulatory departments to gain valuable insight in order to help diminish risk. Further, contracting best practices, shared legal language, centralized pricing controls, and other CLM mainstays contribute to and improve the quality of enterprise knowledge management.
Unfortunately, many organizations manage their contracts via a series of inefficient, manual, and disjointed processes which; lengthens the contract cycle, increases costly errors, and practically guarantees that milestones will pass with obligations unmet and renewal opportunities squandered.
THE CONTRACTFX™ CLM SOLUTION
ContractFX™ employs a combination of information technologies, including intelligent capture, enterprise content management, and business process management to address the development, approval, and execution of contracts. A CLM solution should eliminate common bottlenecks across the contract lifecycle, while enabling organizations to:
- Generate more profitable agreements
- Capture savings and optimize renewals
- Reduce contract cycle time
- Minimize attorney dependency and review time
- Accurately track buy and sell side obligations and milestones
- Gain a complete view of all contracts and the contract process
- Shrink “maverick” spending
- Decrease risk exposure and maintain compliance
ContractFX™ comprises of three (3) components; Central Contract Repository, Authoring & Approval, and Compliance Management.
The Central Contract Repository
For organizations just coming to grips with the magnitude of their contract management needs, the first priority is often answering the question, “Where are our contracts?” Without a CLM solution, the answers are all too often “everywhere” and “who knows?”
That’s why the foundation of ContractFX™ is a single, unified repository, which provides a web-based document management environment enabling full-text and keyword search of contracts and attachments. ContractFX™ is able to manage electronic documents in virtually any format, including all versions of the .doc, .pdf, .ppt, and .xls file types, and all the common image formats.
Authoring, Negotiation, and Approval
As an option, ContractFX™ offers a flexible, template driven, authoring and approval environment that seamlessly integrates with the contract repository. The contract authoring option accelerates efficiency by controlling the contract creation process and improving collaboration between buyers, sellers, and their internal stakeholders. ContractFX™ contract authoring features revision tracking, versioning, as well as access to a central library of preapproved clauses and terms that can be repurposed and shared across the enterprise.
The ubiquity and ease of Microsoft Word has made it the authoring tool of choice for most documents, and contracts are no exception. Therefore, ContractFX™ allows authors to create and edit contracts in MSWord, significantly reducing barriers to user adoption and speeds time to value. MSWord enables contracts to be created from scratch, from templates that support complex business rules, from existing contracts, or from a combination of those methods. Integration with the contract repository and its preapproved language library simplifies clause and term selection and ensures consistency and adherence to established guidelines. An MSWord-based authoring environment also enables third-party contract documents authored in MSWord to be imported so that critical terms and clauses can be extracted thus shortening the negotiation phase, where back-and-forth heavy lifting occurs.
ContractFX™ provides a web-based wizard that poses conditional questions, which the user answers to begin contract creation. The wizard outputs the results in Word and authoring proceeds from there.
Compliance management provides a disciplined yet flexible means of control that orchestrates tasks, activities, and decisions across the contract lifecycle. It brings standards and best practices to bear in purchase approvals, tracking, enforcement, and performance management of goods and services.
Automated workflow, one of the primary tools of compliance management, brings speed, discipline, and efficiency to the CLM approval process. For example, workflows that employ approvals may engage multiple stakeholders and departments, depending on the type and/or level of cost of the purchase or service. ContractFX™ monitors and estimates the cost-to-complete of a contract to bring attention to contracts that may face cost overruns. ContractFX™ supports “dynamic approvals”—workflows that enable the approval chain to change automatically as components of the contract are modified, adding or removing steps and approvers.
In the area of contract administration, process management functionality helps administrators track and enforce obligations and monitor key milestones via automated alerts triggered by business rules. These alerts reduce all manner of issues that contribute to revenue leakage and unrealized savings opportunities: missed payments, over and under payment, billing errors, and renegotiation windows that pass during the contract renewal period. For example, aggregation-based triggers can notify contract administrators when the total value of contracts with a vendor exceeds the contract or project balance not to exceed.
Many contracts, especially those of long standing, have numerous amendments, complicating the task of administration and making it difficult to understand the prevailing terms and conditions. ContractFX’s process management interface aggregates amendments into an effective, consolidated view that it more clearly defines the business relationship, helping to ensure that obligations are met.