There are many ways to manage contracts, but few companies do it well. The most successful companies follow established best practices — such as writing clearly defined terms and conditions and communicating clearly with customers and vendors — when creating new contracts or modifying existing ones. They also use templates when appropriate and use automation wherever possible.
What does everyone else do? Let’s start with those defined rules of contract management that you’re no doubt breaking a few of!
First, you’re not accounting for change. Contracts are fluid things, they are living documents, and changes happen all the time. Creating a flexible approach to change is key, working collaboratively with your suppliers and defining what this looks like early on. If you don’t account for change in your contract management system, you’ll end up with a mess on your hands. That’s why it’s so important to have a system in place that accounts for changes; variations in scope and pricing must be captured.
Second, you’re probably not tracking every contract as they move through their lifecycle. Tracking all contracts along their life cycle is crucial to doing good contract management. You need to know where each contract is at any given moment so that you can keep track of what’s going on with it and make sure it’s moving forward properly. You’re not tracking expiration dates. Contracts expire — or “lapse” — after a certain length of time or after all deliverables have been completed. If you don’t track these dates, this can lead to some serious consequences down the road when it comes time to renew or renegotiate the agreement.
Thirdly, you’re not using automated tools to help manage contracts. Automated tools make it easier to track changes, ensure compliance and manage key dates. And since they’re automated, they can be made available across multiple locations or departments so everyone has access to the same information at all times. They help to be clear about accountability, roles and responsibilities. If you don’t have an automated process in place that allows key stakeholders to see a contracts’ status and who is responsible for what on a contract, at any given moment, then it’s impossible to do good contract management effectively.
Check out Accord’s automated tools here:
Fourth, you’re not using analytics to measure risk and performance against expectations. You’re not tracking key performance indicators (key performance indicators) related to your contracts because this data isn’t available anywhere within the organisation. Without this information, there’s no way to measure risk or performance against expectations — or even know what those expectations are in the first place! Without this data in hand, it’s impossible to make informed decisions about whether a contract is working out as expected or whether it needs further attention.
Fifth (and finally), you’re missing out on opportunities for improvement. Your contracts may be working well enough today but they could be doing better tomorrow — if only you knew how! You should actively focus on continuous improvement in your contract management process, improve the stakeholder-supplier relationship and increase value for money across contracts. Check out our article about how re-focusing on post-award contract management can benefit your business here.
While the first step in effective contract management is to make sure you have the right contracts in place, that’s not enough. You also need to manage them effectively. If you’re not doing this, you’re leaving yourself vulnerable to all kinds of problems and liabilities, including:
Unnecessary risk and liability for your organisation. You can’t manage what you don’t measure, so if you don’t collect data about how your contracts are working out, it’s impossible for you to know whether they’re meeting expectations or not. Without this information, you don’t know what risks may be lurking in your contracts or which ones are causing problems for your organisation, leaving you open to financial losses and legal action from unhappy customers or vendors.
If you’re not managing contracts carefully, they could end up costing you more than they’re worth, impacting your bottom line.
Taking the first step and recognising the need to up your contract management game is a huge step. If you recognise your organisation is failing in any of the above areas, contact us today for a free no-obligation look at how the Accord contract management system can help you course-correct.
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