Daily Archives: February 7, 2008

The 6 Days of X-asperation: Day 5 – Questions to ask your Contract Management Vendor

Just like we did in the X-emplification series, we’re going to continue with Contract Management as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

You need to figure out how many contracts you have, where they are located, and how many are in electronic form. Although this question might sound easy, in your average large organization, this question is a lot harder to answer than you think it would be – and should be. You’ll probably have to canvas dozens, if not dozens of dozens, of individuals to find out how many contracts you should have, only to find out that you don’t know where half of them are. In some cases, you’ll have to go back, a bit embarrassed, to your supplier and ask for a copy.

If the contracts are in electronic form, then it’s simply a matter of identifying the formats, running them through conversion software to get them to a common format, and tagging them. But if they are mostly in paper form, then you’ll have to do a lot of scanning and manual correction of the OCR errors before you can start tagging them.

Depending on the length and complexity of the contracts, it could take anywhere from 15 minutes to an hour or two to get a contract properly loaded and tagged, with alerts and expirations, into an enterprise contract management system. If you have a thousand contracts, you need to allow at least five hundred man hours, or 3 man months, of resources to get this done, once the contracts are in electronic form. Finding and scanning them could take another 3 man months (or more). It’s true that you can deploy a number of resource simultaneously to get this done faster, but, in real time, I’d allow at least 3 weeks to identify, find, and scan the contracts and 2 more weeks to get them in the system, tagged, indexed, and verified.

So, if a vendor tells you, as a large organization, “no problem – we can have you up and running next week”, either they don’t really understand the complexity of an average large organization undertaking this project for the first time or they’re trying to pull the wool over your eyes. Either way, I’d be wary.

2a. How much functionality is my organization realistically going to be using in 12 months?

All of the core functionality around contract storage, retrieval, and, if supported, construction. This means that you’ll be using the repository, search, meta-data, alerts, import, export, and contract authoring features. Any features beyond that will probably not be used, or at least not on a regular basis.

2b. How much functionality do I really need?

When it comes to bells and whistles, contract management is like the Microsoft Office of the e-Sourcing world. Some of these tools have so many “features” that it makes your head spin. But we already know it’s not “features” that you are looking for when you are shopping for enterprise software, it’s “functionality” and, in particular, the functionality that you need to do your jobs, and do them well.

To this end, the following “functionality” is critical when you are evaluating enterprise contract management technology:

  • A solid, robust, scalable contract repository,
  • User-definable and extensible meta-data support,
  • Alert and expiration definitions, and
  • if you are going to be using the tool to help you generate contracts,
    Contract templating capabilities.

Just remember that, in contract management, the ability to author a contract in the tool isn’t that important. After all, Microsoft Word is quite cheap compared to the cost of some of the Enterprise Contract Management solutions on the market and Open Office is free – and both are probably much more powerful than any editor the tool is going to provide (unless it integrates with these tools). In-tool editors are nice, but don’t sacrifice powerful metadata and tagging capabilities, or a big wad of cash, for a gee-whiz editor.

Finally, remember (as with most e-sourcing tools), you may someday be moving on from whatever tool you select today. Nothing is “forever.” There will come a time when you want to pull the data from this tool into another tool, such as a spreadsheet or relational database or different contract management system. The contract management tool should allow you to pull all of the information out, preferably in flat file format (not some complex XML format) such that desktop tools (and other applications) can trivially import it. You may be surprised to find that some major vendors cannot provide this functionality, so make sure to ask for it.

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at a contract management solution, your biggest pain is that you are having difficulty keeping track of all of your contracts with respect to terms, conditions, and (evergreen) renewal dates and need an easier way to not only track this information, but to access previous contracts and standard templates for standard terms and conditions when negotiating a new contract. If you’re looking for savings, you’re looking at the wrong tool. A contract management tool gives you efficiency, consistency, and helps you with your compliance initiatives (but does not solve all of the problems). It doesn’t deliver up-front savings like e-Auctions, spend analysis, and decision optimization. It supports your efforts to insure that negotiated savings are realized. It’s important, but it won’t save you big bucks on it’s own.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

A few days. Make sure your team is appropriately trained on the process to load a contract, create the meta-data, create alerts, run status reports, search the repository, and, if the functionality is included, create templates.

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Basic contract management is not much more than document & content management, which is a commodity – especially given the number of free open source systems out there. Best-of-Breed enterprise contract management is also becoming mature, with a number of players offering reasonable, and reasonably equivalent, functionality. Therefore the cost for a basic system should not be more than for an e-RFX / e-Auction system, and the cost for a true enterprise system somewhere between the cost of an e-RFX / e-Auction system and a spend analysis system.

The maintenance fee for a basic contract management system should be on par with that of a basic e-RFX / e-Auction system while the maintenance fee for an enterprise contract management system should be midway between the fee for the basic system and the fee for a spend analysis system – around 10% to 15% per year.

On-demand installation should be free. On premise should cost no more than a day of consulting. However, you should consider retaining a project manager to help you get your contracts scanned, tagged, and loaded, with appropriate alerts, in a correct and efficient manner. The rates should be comparable with third party consulting rates.

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for how long it has taken some recent customers to get the platform up and running with the majority (80% +) of their contracts and how much penetration they have achieved throughout the organization with the system. Verify this with the references.

6. Can I take it for a test drive or a short term lease?

Considering that most solutions are web-based, they should be willing to set up a playground where you can load a few dozen contracts on a trial basis and get a feel for the system. They should be willing to do this at a very low fee – equal to no more than a couple of days of consulting time.

7. Can I buy it or implement it in pieces?

Just like you should buy the entire e-RFx or e-Auction tool functionality up-front, you should probably buy all of the functionality that you’re going to want up front, since it should be much more cost effective to do so.