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Contract Lifecycle Management

Establishing consistency throughout contract lifecycle management

Hitachi Solutions > Blog > 2019 > 08 > Establishing consistency throughout contract lifecycle management

Contracts function as the legal agreement between employer and employee, organisation and supplier, seller and customer. Naturally, they take on many different forms. Effectively letting and managing the contract requires accommodating for every stage in the lifecycle. And I know from experience that managing these contracts end to end can be complex and time-consuming.

As companies grow, departments use specialist technology that improves productivity and efficiency. At each stage of the contract management lifecycle, there will be a different application or piece of technology that allows workers to more effectively manage their contracts. But problems begin to arise when these applications can’t effectively communicate with each other. This means the information an organisation compiles on their contracts is inconsistent, incomplete, and difficult to compare across different stages.

To mitigate this, organisations need a solution that combines the benefits of these individual applications into one platform that can cater to every stage of the contract lifecycle. Here’s a look through how this works in practice at each individual stage.

Pre-procurement and procurement

At the start of the procurement process, a specification is created that outlines the operational, functional and business objectives of the contract, including relevant service level agreements (SLAs) and key performance indicators (KPIs). These vital document contents provide a common framework for both parties to effectively measure how successfully the terms of the contract are met.

In the pre-procurement and procurement stages, a number of common issues arise, of which document control is the most significant. Traditionally, documents have moved through the stakeholder contribution, review and approval stages via email. This means that often, at final sign-off, it can be difficult to know whether the document has been seen by, or contains all relevant parties content, and who had responsibility for final approval.

A centralised repository for document management can solve this problem, by holding a single, up-to-date version of every document. This ensures that each stage of pre-procurement is accounted for, as well as using and including the most up to date schedules when publishing tender documents.

It’s not uncommon for people undertaking procurement and contract activities to not be experts in either field. Both disciplines typically require having a substantially different skillset. Strong CLMS platforms will educate and guide staff throughout the procurement and contract process, ensuring they’re informed on the how and the why of the process throughout. A better-informed stakeholder directly correlates to more successful procurement.

Performance management

Once the contract has been awarded, it’s important to create a clear reporting structure against which both parties can measure the performance against their obligations. But to be properly measured, performance needs to be structured, in an easily comparable format. Neither party can be expected to adhere to performance terms that aren’t understood or clearly defined.

It’s also important that organisations can compare performance across different contracts. This allows them to identify if a contractor is performing poorly across their whole portfolio of contracts – rather than only ever seeing each individual performance report in isolation. Outside of ensuring current contracts deliver to an agreement, performance management also directly informs future procurements, with past supplier performance being considered in light of new engagements.

This requires organisations to create clearly structured performance reports that can remain consistent across all of their contracts. These reports should be fast to record, easily comparable and accessible to both supplier and contractor. A supplier portal achieves this, by creating a clear structure for performance reports that is accessible by both parties. The supplier then uploads their performance data against their obligations, and the contract manager(s) can receive automated triggers and alerts that help them meet reporting cycle deadlines, and consistently record and track performance. A 360-degree assessment allows the supplier to identify performance deficiencies within an organisation and creates a more honest narrative with the supplier.

Ongoing contract changes

It’s natural to assume that mutually agreed changes will occur over the length of the contract agreement. Things may be added or removed, prices may increase or decrease, terms may be changed.

When these changes occur, it’s important to maintain a clear data trail of all correspondences and actions that are made in relation to the changes, for purposes of compliance and fraud mitigation. This includes a comprehensive log of any changes that are made, the reasons they occurred, the effect of the changes, who the changes were made by, who signed them off, and when.

When organisations implement a clearly structured contract lifecycle management solution, all this information can be seamlessly undertaken and recorded in one single place. This allows a comprehensive history of contractual interactions to be easily recorded, shared and analysed, as well as providing insights into contract behaviours. Tracking contractual changes to an audit level also identifies and combats risk of fraud and probity internally and externally

Risk management

Across any contract portfolio, there are risks that need to be managed, and organisations need the ability to manage their risk exposure on both a per contract basis and at a supplier level.

Consider, for example, the danger if a single contractor goes into administration while being responsible for a significant portion of an organisation’s operations. Or, in another example, if there are only two or three people within the organisation that are capable of signing off contracts – what happens if they leave the company? Effective risk management involves identifying and eliminating these risks before they become a problem, or managing them so as to minimise any impact.

To do this, businesses need to be able to easily view and compare relevant contract information. If the executives can see that they’re awarding too many contracts to one supplier, this situation can be quickly resolved. More pertinently, they can compare this against past performance management reports to identify the risk in awarding new contracts to poor performing suppliers. Similarly, risk can be managed within an organisation if executives can view and compare data on where sign off responsibilities are distributed.

Once again, achieving this requires ensuring that relevant information is placed into a unified repository which is properly structured, easily comparable, analysable, and accessible to all parties. This enables executives to identify risks and weak links at a glance and resolve the issue. The system can also analyse and automatically identify any obvious risk potential.

Contract renewal

As the contract approaches the end of its initial term, a decision must be made about whether to renew. Contract managers will need to analyse the information they’ve gathered on that supplier to make an effective decision, including performance reports, and relevant contractual changes. If this is clearly stored and easily comparable from a central location, the decision should be quick and easy. Contract lifecycle management platforms achieve this by presenting all the relevant information in one place, allowing for fast and effective contract renewal decisions.

As well as this, most contracts will include a deadline by which cancellations need to be reported – after which the contract will automatically rollover. Therefore, decisions need to be taken by a certain date if managers don’t want to be saddled with unwanted contracts that they forgot to cancel.

The right contract lifecycle management solution can automatically notify managers when decisions like this need to be made, based upon the trigger date that was originally established in the contract. A central view of contracts also creates the opportunity to consolidate suppliers when renewals for like services are approaching, reducing cost and supplier footprint.

Finally, once the process is complete, it can record details on who signed off the contract renewal and when – for purposes of future compliance monitoring and fraud mitigation.

Effective, end-to-end contract lifecycle management

There are many specialised tools to deal with the intricacies of contract management. But it’s only by combining their potential into a single integrated platform that you can standardise your contract lifecycle management, establishing consistency throughout the process and visibility into contracts for data-driven decisions. Managing contracts in a single repository, with tools built to address and streamline the confusion, creates efficiency, unity and clarity at every stage of the contract process.

To find out how to fit your technology to each step of contract lifecycle management speak to our experts today.

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Tim Kidd

Tim Kidd joined Hitachi in 2018 with 23 years experience of working within Public Sector services.
With roles in Microsoft’s Public Sector Division, and Local Government as Head of service, he now supports organisations with programme delivery and strategic decision making.
In his role his mission is to enable transformational change, streamline operations, address budgetary pressures and improve the lives of citizens, businesses and employees.

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Author spotlight

Tim Kidd

Tim Kidd joined Hitachi in 2018 with 23 years experience of working within Public Sector services.
With roles in Microsoft’s Public Sector Division, and Local Government as Head of service, he now supports organisations with programme delivery and strategic decision making.
In his role his mission is to enable transformational change, streamline operations, address budgetary pressures and improve the lives of citizens, businesses and employees.

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