Driving Collaboration with Contract Management – Part 2

Part 1 of this 2 part series provides a brief overview into the reasons for the collaboration challenges between procurement and legal departments. Part 2 of the series looks into the technology and process initiatives that enable a collaborative relationship between the two functionaries. The need of the hour is for the contracting process to enable collaboration between the procurement and legal functions rather than be a cause for dissent. It is imperative that a process is created within the organization that makes contract authoring, creation and management simpler.

Although getting buy in from employees in the procurement and legal teams is important, the first step to have an effective process in place is to invest in the right technology.A contract management solution should be able to foster collaboration by providing clause libraries and standard contract templates that ensure contracts don’t miss out on any mandatory clauses and terms. This will help in reducing the time for legal review as well as ensuring minimum exposure to risk. Although it should provide a sufficient collection of standardized clauses and templates the contract management solution should also have customizable work flows that permit the insertion of clauses that help organizations take advantage of market conditions and supplier discounts. There should always be room for renegotiation especially for volatile commodities. This can be achieved by putting clauses like escalation/de-escalation clauses or conditions on contract renewal based on prevalent commodity market prices that insure the organization against volatility risks.

 Technology as an enabler:

 An ideal solution to this collaboration conundrum would be a solution that streamlines all the steps of the contract management process. A typical contract management process can be divided into three major stages.

  • Contract Authoring: The solution should be able to create contracts with pre-defined work flows that not only incorporate feedback from all relevant stakeholders during the contract creation process but also take care of exceptions and approvals. The authoring process can be made easier and more compliant by having a central template repository that contains all pre-defined clauses. Legal teams should have access to this repository to continuously update the latest clauses and ensure that the organization has no unforeseen risk in getting into the contract
  • Contract Negotiation: Contracts should contain well-defined service level agreements (SLA), which are transparent to suppliers. Alerts should be configurable within the contract management system for tracking compliance both for users within the organization as well as supplier performance to contracted terms. Besides compliance alerts the solutions should also have alerts for contract renewals so that evergreen contracts don’t get renewed repeatedly without the scope of renegotiation-something legal teams always have on their cross hairs. Contracting solutions should be able to match contracts with spending data to help track any maverick spend and in turn provide potential opportunities to save. Analytics should also be provided on supplier performance in term of discounts adhered to and quality.
  • Contract Sign-offs: Electronic signatures have to be mandatory for any contract management solution implemented and should be enabled during various stages of the contract creation and approval process.

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