What is Contract Lifecycle Management Software?

What is Contract Lifecycle Management Software?

WHAT IS CONTRACT LIFECYCLE MANAGEMENT SOFTWARE? Purpose Built for Australia Introduction Managers within any organisation would agree that contracts are incredibly important documents. They contain vital details of an organisation s relationships with its partners, suppliers, customers, and employees. You will fi nd a substantial amount of these documents within large organisations, government departments and city councils. The more contracts an organisation has, the harder it is to keep track of how they are performing, the associated compliance issues and good governance practices. In fact, it s already a challenge locating these contracts and the personnel/s responsible for them. It also becomes stressful when the Auditor General or certain regulatory bodies start asking questions about compliance and audit trails. With the above in mind, it comes as no surprise that in the context of automated processes within a Procurement Department, managers highly recommend that an Integrated Contract Management System would signifi cantly assist them to perform their jobs better. (Source: Forrest Research, Inc.1) The key is to stop contracts from managing you and for your organisation to start managing contracts. Here s what you ll find inside: Contract Lifecycle Management software is an automated contract babysitter Contract Lifecycle Management solves problems at each stage of the contract lifecycle Effective contract lifecycle management paves the way to greater organisational excellence 2

Most organisations recognise that they could manage their contracts more effectively, but how do you defi ne it in your organisation? IIs it to: Better align day-to-day contract activities with your Procurement Policy? Recognise key problem issues well in advance so that you can enjoy a no surprises work environment? Better manage sign-offs of securities received, warranties, variations and other type of contract issues? Improve assessment of contractual deliveries and suppliers performances? Simplifying the Contract Management process story from start to fi nish (i.e. Contract Lifecycle Management)? Having better management information at your fingertips? Impact & Frustrations Contracts have an enormous impact on an organisation s value for money objectives and performances relating to procurement. This is because it affects revenue and expenses. They can also affect the reputation of an organisation due to the perception of corrupt processes or even worse - actual fraudulent events. Here are two examples on how the mismanagement of a contract can cost a business millions of dollars. Example 1: Government departments and city councils work on a decentralised model for the initiation, reward and management of contracts. It is very hard to ensure that everyone involved are adhering to their procurement policy accurately to prevent any irregularities. There are still cases where Tender Panel Members were later found not being independent or that the approval of Contract Variations was made without the legitimate approval process. In Australia, the Auditor General of every state publishes regular updates on their fi ndings relating to the discovery of similar cases. This often results in several penalties and negative consequences in order to eradicate fraudulent behaviour and irregularities. Example 2: A maintenance contract of a large company had various milestones and KPIs which the supplier had to honour. The contract also contained incentives to encourage the supplier to complete work ahead of schedule. These incentives were paid out without any proper sign-off or approval procedures in place. The Financial Manager had no visibility of the supplier s poor performance record. The Contract Manager has a feeling but can t back it up with hard facts & evidence, or prove a trend of poor delivery or non-compliance. The host company did not have the processes and tools in place to discover the fl aw on its own. The fi nance department was out of step with the Procurement Department and the Procurement Department did not have the necessary tools in place to ensure the company s maintenance engineer is correctly managing the supplier as agreed to within the contract. This was not so much mismanagement as simply a lack of management an error of omission. Yet this is highly common. 3

Besides the above, you may be experiencing the following frustrations within your Procurement Department: Searching through multiple hard drives and fi ling cabinets for contracts? Compliance and governance requirements that drives you nuts? Expectation to work decentralised with standardised procedures, but diffi cult to manage all your Contract Managers? Wasting time with the creation of contracts and formatting documents? Handling large contracts well, but less control with smaller quotations and contracts? Experiencing constant issues whenever the contract managers go on leave? Dropping everything to manage a contract as its termination or insurance has suddenly been sprung on you? Spending hours pulling together data to report the status on your various contracts? Feeling at risk seeing that contracts and legal issues are managed via a spreadsheet with no audit trail, i.e. are non-compliance issues keeping you awake at night? Having the need to expand or link your Contract Lifecycle Management story to e.g. Risk, Safety, Project, or Vendor Management. But your current tools and procedures makes it diffi cult to proceed with this initiative. Contract management software is an automated contract babysitter It s obvious but nonetheless wise to remember that contracts are documents that are frozen at a point in time and represent rights and obligations that are to be delivered over a future period. This is why contracts need to be managed through their entire lifecycle, from cradle to grave, to make sure they are doing what they re supposed to be doing. Contract lifecycle management (CLM) is the constant process of ensuring that a contract is correctly: Initiated and kicked-off Reviewed and monitored Changed if variations are needed Delivered i.e. all provisions enforced and intent realised Compliant with required Procurement Policies The big question is how your day-to-day tasks align with your internal policies & procedures? It comes back to the gap between what happens in the practical work environment (i.e. daily management tasks) vs what is stated in the lever arched fi le with the sticker on it called Policy. Contract Lifecycle Management software exists to: Close the gap between Policy and Practice. Case manage each procurement initiative from start to fi nish Do all the above in the most effective and effi cient way possible 4

Contract management software solves problems at each stage of the contract lifecycle There is no precise, universally accepted model of the Contract Lifecycle. Each organisation does it differently especially in relation to sign-offs, routing, reporting and essential data capturing. Our model views the lifecycle through the lens of your chronological process story in order to make it easy to understand by all users. We do it this way seeing that a key objective of any Contract Management Software should be to encourage all stakeholders and users to engage with the solution. If it is too abstract, unstructured, diffi cult to follow or use, then people will quickly start fi nding reasons why they are not using the system the way it was intended. It is our experience that most Contract Life-cycle Management (CLM) process stories include the following 3 high level stages: Initiation Stage Requesting a Tender or Contract Response Stage Evaluation & Appointment of Contractor Delivery Stage Obligation & Compliance Management This model makes it easy to identify a subset of challenges for each stage and discuss their business impact. The basics of a contract management solution An IACCM survey revealed that at minimum a satisfactory Contract Lifecycle Management solution must include: A central repository and an enterprise-wide, structured process to manage contract creation and execution The ability to effectively manage contract milestones via automated alerts Automated workflow for contract review and approvals The capabilities and tools to better manage obligations, compliance and performance. In addition we belief that the following two points are also important The capability for your CLM Solution to adjust according to your continuous process improvement initiatives and thereby keeps it relevant to your latest policies and procedures. The incorporation of Smart-Phones, Tablets, ipads and Web technologies which will become increasingly important for the future. With the above entry-level requirements in mind, we ll take a look at what full-featured contract management software contributes at each stage in our contract lifecycle. Response Stage: Evaluation & Appointment of Contractor Challenge: By and large, procurement policies provide clarity and procedural correctness on how to initiate, evaluate, select, appoint and manage a contractor. The challenge is that off-the shelf contract management solutions do not always fit the procedural steps as outlined in an organisation s unique procurement policy. This makes it diffi cult to enforce standards and compliance. This is why many procurement professionals often revert to the use of spreadsheets or paper forms to better manage this stage. These options are flawed with risk due to 5

the lack of an audit trail, transparency and version control. Also incomplete approvals and missing signatures often cause delay in the CLM process. Solution: Sophisticated contract management software provides the capability to customise the solution to best fit your organisation s process steps and data capturing needs during this stage. For example, this may include the capability to enter in all responding vendors for consideration, the scoring of each vendor s submission or capabilities, short listing of potential contractors, contract authorisation, contract establishment, etc. It should also offer the ability to integrate with an eprocurement Solution portal to publicise an organisation s tender or request for quotation. The sending of automated communication (e.g. nonsuccessful letters) to vendors, contract assembly and mail merge will help with the generation of actual paperwork and save heaps of time. Delivery Stage: Obligation & Compliance Management Challenge: No matter how well negotiated and favourable the terms are, the benefi ts of a contract can be quickly and completely undone by a fi le and forget mentality. Remember, a contract is a point-in-time agreement whose constructive, or destructive life goes far beyond execution. Keeping track of issues relating to insurance renewals, warranty lapses, defects, securities, etc can be time consuming. Also contracts rarely escape amendments or variations. The give-and take of commerce ensures that most contracts will undergo modifi cation to refl ect changes in the marketplace and in the relationships of their signatories. Without a consolidated view of a contract and all its compliance issues, it s diffi cult to keep track of what has been done and why. This is particularly true in long-standing relationships where a contract can span over a number of years. Contract management technology can consistently provide two things during the life of a contract: visibility and control. Solution: Features such as fulfi lment tracking, automated alerts linked to key events, performance management, fi nancial tracking, communication logging and renewals will empower a contract managers to stay on top of his or her game. Sophisticated analytics and reporting will help administrators maximise contract value while enjoying the benefi ts of pro-active management of contracts. It will also offer high levels of transparency and collaboration for management teams. This section should also address the management of all aspects relating to Legal, Risk and Safety compliance. A 360-degree view of a contract relationship is also essential to managing variations and amendments during this stage of the CLM process. Contract Lifecycle Management software should provide a single, effective view of a business relationship that makes clear the main issues and achievements. 6

Effective contract management paves the way to greater profitability, compliance and probity. Contract management software can ensure that contracts contribute signifi cantly to profi tability by increasing revenue, reducing costs, minimizing risk, and improving control. The right contract management solution does this by helping organisations: Have a centralized and searchable Contract Repository with tailored Portals Manage contracts across organisational units in multiple geographies, business units. Manage contract lifecycle creation, management, renewals, expiration, etc. Gain a clear Audit trail Better manage small and large procurement projects Achieve improved Sign-off, visibility and approval management. Shape the solution around your organisational hierarchies, reporting structures, and governance rules. Enjoy integration between your eprocurement Portal & Contract Management System Improved Governance, Sign-offs & Approval processes Assemble your contract documents in a fl ash Experience fast benefi t realisation in an affordable way ebms Offering Contract Lifecycle Management solutions based on the way your organisation works ebms offers the most innovative, fl exible and affordable software that progressive organisations use and rely on to improve the effectiveness of their contracting processes. Our playdough like technology can be shaped to best fi t your unique requirements relating to e.g. data capturing, workfl ow, reporting, reminders and process story. For more information, visit www.managingcontracts.com.au 7