The 12 Days of X-emplification: Day 4 – Contract Management

Contract Management is important. If you don’t acquire the goods and services at the negotiated prices, what was the point in spending all of that time coming up with the best award and negotiating the contract? However, as a colleague of mine once remarked, most of the “contract management” solutions on the market today don’t do more than what I could do with a Microsoft Access database and a high-school programmer, which is, quite frankly, not much!

Thus, in order to help you separate the wheat from the chaff, here are some basic questions that you should be asking of every vendor that tries to sell you a contract management solution, and an enterprise contract management solution in particular (where questions 3, 5, and 7 become particularly important). The fact of the matter is, if they don’t even pass this sniff test, you might just be better off downloading a free open-source document management system and using that – because a(n enterprise) contract management solution that doesn’t support a reasonable amount of inherently useful features isn’t any better than the electronic filing cabinet that you can find in at least a dozen free open-source document management solutions.

1. Does it allow you to define your own meta-data dimensions?

If the only meta-data the system supports is contract name, uniquely generated system id, supplier, effective date, and termination date – that’s not very useful. You also want to capture evergreen renewal dates, resource dates appropriate to the commodities being sourced, the goods and services covered by the contracts, the agreed upon rates, diversity information, compliance information, and a flag on any special conditions that are not standard among your contracts.

2. How easy is it to export the meta-data, or any desired subset, in a standard format recognized by any decent modern e-procurement, EIPP, or e-payment platform?

As I indicated above, the whole point of contract management is to make sure that spend is against contracts AT contracted rates. The only way this is going to happen in practice is if your e-procurement, EIPP, or e-payment system knows what the rates are and includes them as part of it’s n-way match algorithm that determines whether or not an invoice should be (automatically) paid as-is. The reality is that no one in AP is going to look-up and enter the rate for each item before an invoice is paid, because chances are they don’t even know where the contract is, or even what contract it’s covered under. In reality, if engineering or production indicates the goods were received, the invoice is marked for payment. And if the invoice is at a rate 10% over what was agreed upon, there goes another chunk of the realized savings that your bonus is based on. Therefore, it’s critical that the content management system can export, on a regular basis, current contracted rates for goods and services which can be imported into the relevant systems in an automated batch fashion, and approved by the appropriate administrators with a single click. Then the n-way match will happen against valid contract data, and you can be sure that everything bought on contract is bought at the contracted rate – allowing for significantly more realized savings (than the industry average of 30% to 40% reported by many of the analyst firms).

3. Does it support free text search? And does the free text search work?

You can’t meta-data everything, and even if you could, you wouldn’t want to. The only data that should be in meta-data is identifying information, agreed upon prices, important dates, diversity, compliance, and “special clause” flags that allow for quick identification of the right contract under targeted searches and easy export of the data needed by e-Procurement and Spend Analysis systems. Thus, when a particular question arises whether or not a certain service is covered under a contract, or a special case is covered by a 150-page contract*, you want to be able to perform a simple search on the contract text that will take you to the relevant subsection and clause. This requires a free text search – that works. It needs to be “smart”. For example, if you search for screw, you don’t want results that include “screwdriver”, and if you search for “tire”, results on “tireless” are even less useful!

Furthermore, it should work on contracts not natively created in the tool. These days, it’s going to be in a standard office document format, RTF, HTML / XML, or PDF – and since lots of free libraries exist for searching and indexing such content, there’s no excuse for the vendor not to be including this capability! (If the vendor is stoned enough to say that’s not true – that no one makes available such extensive functionality for free, just point out that Open Office is free across multiple platforms and it supports all those file formats, and many more!)

* I’m not saying your contracts should be 150 pages (in fact, I would say that they probably shouldn’t even be 15), but the reality is that many corporations have contracts this big (or bigger) because many lawyers appear to believe that their worth is measured on how complex and convoluted the contracts they draft are!

4. Does it support proactive alerts – on contracts NOT composed using the standard templates or built-in functionality?

Let’s face it, alerts are only useful if you can define alerts on every contract and, moreover, define them for every event you need to be alerted to. Once you install a system with “alerts”, users will quickly fall into the mindset that everything is fine unless they get an alert, so if you can’t program every event they need to monitor into the system, the installation of such a system will result in a large number of balls being dropped in the short term. Even worse, you might not notice that the ball has been dropped until something catastrophic happens. (Like an automatic evergreen renewal with a vendor who is not REACH compliant!)

5. Does it support buy-side and sell-side contracts?

From an enterprise perspective, a contract management solution that only manages half of your contracts isn’t much of a solution! This is another reason why you need flexible user defined meta-data – sales is likely going to be interested in different data than procurement is.

6. Is it easily accessible and usable by everyone in the organization?

If only a few users have access to it, it isn’t even as useful as a central filing cabinet. At least then all of the personnel could theoretically walk to the cabinet, find the contract, and if they need a copy, make a copy on the local photocopier and put the original contract back. Let’s face it – it’s not just procurement that needs access to an average contract over its life span – it’s legal, research and development, engineering and production, accounts payable, and business analytics, among others.

This means that you should be wary of any solution that is sold “per seat”, because you’re going to need a lot more seats than you have buyers in procurement.

Furthermore, it needs to be easy to use. Just because IT and Procurement might be power users, doesn’t mean accounts payable or legal is. ( After all, e-mail might still be new to them. ) If the primary navigation isn’t a dumbed-down GUI, chances are it won’t get used. (And again, I refer you to the free open source document management solutions if you want a solution that probably won’t get used.)

7. Does it support the creation and management of initiatives such as risk management and IP-based revenue generation around your contracts?

And now for the painful reality check – everything I’ve described so far can be accomplished by a high-school programmer with Microsoft Access and a few open source libraries. There’s nothing special or hard about the basic requirements that we have covered to this point. That’s why this last point is so important. If it doesn’t have built-in project management, or integrate with a project management tool, and enable you to undertake initiatives with respect to your contracts, it’s not a very sophisticated solution.

Although it is true that any solution that satisfies the requirements implied by the last six questions is useful, and probably a lot better than what many of you have today, it’s important to remember that such a solution is not a very sophisticated solution. Contract Management is another area where the vendors have been primarily selling sizzle and not steak for a long time now. Thus, even though the solution you need is a lot more than what most vendors are currently offering, it’s not a sophisticated solution and not one you should be paying more than five figures for (as you can get open source content and document management solutions that come pretty close for free).

Of course, even integration with project management isn’t that hard to do at the level I’m suggesting, but it is a step or two above trivial and hence justifies the foundations of a true enterprise contract management solution, whatever that shapes up to be.

8. How hard is it to get the data AND contracts out of the solution?

From a procurement perspective, a contract is only useful if you’re complying with it to realize the negotiated savings. If you can not easily export the data you need to check, and enforce compliance, in a format that is compatible with the ERP, e-Procurement, and / or e-Payment systems you use, it’s not that useful.

In addition, there might come a day when you have to change systems. Maybe a better system comes along, maybe it’s an equivalent system that costs significantly less, or maybe the current provider stops supporting the system. If there’s no simple way to export ALL of the data and attachments into a logical file and directory structure, chances are that the only way you’ll be able to get data into the new system is to manually enter ALL of it again. If you’re a large organization, this is one project you never want to have to undertake – especially since it should not be necessary with today’s technology!