How efficient are your contract management processes?

Contracts don’t exist in isolation. They are created from multiple information sources under the analysis and guidance of professionals. Once finalized, they direct daily business activities. The larger the volume of contracts managed, the greater the impact to your organization and the greater the importance of contract lifecycle efficiency. Taking Mr. Beardsley’s theme of “why are we doing this?” and “why are we not doing this?” as a starting point, we examine key steps in the contract process with the goal of identifying areas for process improvement.

How efficient is your draft-through-approval process? Do you begin with standard templates and craft the contract with relevant terms and conditions from an approved clause library? Does a well-designed workflow guide the contract from draft iterations through final approval? Is the process facilitated by making the latest version available to those working on the draft? Can you definitively verify who approved the final version and when?

We have found that in many instances, this part of the contract lifecycle is informally managed, with versions of the draft residing on the collaborators’ hard drives. E-mail often substitutes as an informal workflow. Review and approval steps depend upon the inherent knowledge of the individuals responsible for this stage of the process. Consistency and quality tend to be compromised when there is no formal definition or process map for this portion of the contract lifecycle.

What about secure and accessible storage? Once approved, is the contract formally classified and filed in a file cabinet or an electronic repository? Is any of the supplementary information (pricing, bids, RFPs, etc.) associated with the contract similarly retained, should it need to be referenced in the future? If your organization has retention and records management requirements, are retention schedules applied to the contract and supplementary materials? Is the preferred medium for retaining contracts paper or digital?

Organizations that continue to rely on paper as the preferred medium for contracts are not realizing the benefits of adopting a digital strategy for contract management. Paper has inherent disadvantages, and paper contracts are subject to misfiling or loss. We’ve heard one director exclaim in frustration, “There are people here whose jobs are just to look for lost documents.” Large volumes are costly to store and may usurp office space that could be used more productively. What is your annual expense for document storage (on-site and off-site)? Could that money be better invested in a means to manage contracts digitally?

When the contract review and renewal time approaches, how do you manage that? Do you depend upon contracts administrators who maintain tickler files? Do administrators have to search a spreadsheet to determine contract renewal dates? Have you had to renegotiate contracts at less favorable terms because you missed a contract renewal deadline? What percentage of contracts that you retain are truly “active” contracts?

Taking a holistic view of the contract lifecycle leads us to believe that the renewal process should be triggered automatically by a process that establishes a renewal date at the time a contract is approved. Organizations responsible for thousands of contracts surely would benefit by allowing a business process to establish renewal dates as part of the contract lifecycle and automatically launch the renewal process on a date well-before contract expiration.

During the review and renewal process, is all of the relevant information associated with contract performance easily accessible to the contract administrator, thereby providing a “complete context” for the renewal decision? Supplementary information such as purchase orders, e-mail from the supplier, pricing schedules, etc., are critical in determining the contract performance. Having a single point of access to this information can positively impact the efficiency and thoroughness of the contract renewal process.

There are many more questions that could be posed to assess the efficiency of your contract lifecycle. If you are interested in exploring the “why” and “why not” of better contract management in greater depth, join us for an interactive webcast on Tuesday, Oct. 28. You could help uncover some “questionable” processes.

About the author

Dan Bigos works at IBM and champions the use of enterprise content and business process management to improve contract practices.