How to Implement Better Contract Management

Ask a business leader about contract management. They will probably tell you about late-night negotiations, arguing with lawyers, red-lining documents and disputing who did what when something fails.

What they probably won’t know and won’t talk about is the number and different types of contracts their business is engaged with.

The fact is that large organisations can have up to 20,000-40,000 contracts. It’s no wonder businesses can struggle to manage them, especially when 85% of companies use manual processes to manage sales contracts.

 

Your contract management knowledge should include:

  • Who’s managing them?
  • What risks are involved in them?
  • What opportunities exist in them?
  • What are the key obligations on the parties?

 

If you speak to a commercial person, they will focus on the goods and services they’re buying, the payment terms, the penalties when something goes wrong and whether everything has been signed for. What they might leave out is the fact that they have a spectrum of contracts.

Contracts can be as simple as Terms and conditions on the back of Purchase Order but equally can be multi-page documents for the provision of complicated services such as facilities management or manufacturing.

The fact that the documents are complex (and possibly dull) doesn’t make the content any less important. They’re contracts; they introduce obligations and risks to your business that you need to manage effectively.

If you’re searching for a contract and don’t know where to find it, if your office descends into chaos, trying to find the latest copy of the agreement, the chances are your business has not implemented effective contract management. No one knows how to keep on top of the contracts through a lack of organisation.

Good contract management consists of having a well-organised system which captures and centralises the contracts your organisation is engaged in.

 

We believe that effective contract management consists of four parts:

  • Do you have knowledge of what contracts exist?
  • Do you understand the obligations, the risks and the costs of the contract?
  • Do you know when the contract expires?
  • Do you know whether the contract is still relevant to your business?

For example, someone signed a contract 10 years ago for the supply and maintenance of fax machines for the next 30 years at a cost of £100 per machine. You would probably decide that’s no longer what you needed. However, if you can’t locate the contract and are unsure of how to terminate it, you’re just going to keep paying it unnecessarily.

 

We can help you run the process:

What can we help you do about it?

  • Gain an understanding of where you are today.
  • Be aware of what you buy, who you buy it from and what kind of contract covers that relationship. For example, purchase order with T&Cs or a full-blown contract document.

Once we’ve obtained that list, we can prioritise them from the ones with a high impact on your business to the smaller-impact contracts. We can then begin focusing on the top priority contracts.

 

We can then give you a summary of:

Who is it between? What are its important dates? What obligations does it put on you and the supplier? What are the arrangements of termination? Plus any other provisions in the contract.

We can then confirm whether someone is managing the contract. There are big links to Supplier Relationship Management (SRM) and risk management. It isn’t surprising when supply chain transparency is so poor, with 65% of procurement leaders having limited or no visibility beyond their tier 1 suppliers.

Once you’ve looked at the contract and worked out which ones are working well and which ones aren’t, you can figure out which are irrelevant and which have room for improvement.

 

What can you do to improve the ones that aren’t working or are not relevant anymore?

Once we’ve assessed your approach to contract management, you’ll be aware of how vital each contract is and how well they’re working. You’ll then have the ability to execute the relevant changes to improve SRM, future contracts and risk management.

We may also discover critical Supplier Relationships that are not covered by any contract. The best course of action might be to put a contract in place.

 

What will you get out of better contract management?

Once you’ve completed all the steps, your business will be more confident and efficient in contract management. You will know where they are, how to look for potential improvements and what to do in the event of issues arising with the supplier.

This knowledgeable and organised approach to contract management will feel so much better than running around the office, trying to figure out who has a copy of the contract in the first place.

 

How have businesses benefited from our insight?

As an example, we worked with an IT company that was buying networking capability. They were experiencing significant challenges in network availability, bandwidth and repeatedly being invited by the supply to spend more on upgrading their plans to solve the problem.

When we checked the contract, we found that the supplier was already supposed to be supplying what the company was missing and were obligated to compensate the company if the agreed-upon level of service was not met.

They were then able to get compensation for a service that had not been delivered.

Without our insight, the business would have continued to pay for a service they were not receiving and may have ended up paying even more for an unnecessary upgrade. The contract would have remained gathering dust, with no one aware of the opportunity to cut costs and improve the running of the business.

Get your contract management under control with our help. We’ll provide you with all the knowledge you need to move your business forward, with the assurance that you understand and are confident to deal with your contracts. To find out more about our process improvement consultancy services, click here.

Richard Beaumont

At Bromley Wood we have considerable experience in helping businesses with their procurement, improving ROI, staff retention and the day-to-day running of your business.
If you would like to learn more and arrange a discussion, get in touch today.

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