The Real Reason No One’s Buying Contract Management Software

Over on Commitment Matters, Tim Cummins authored a post on The Guilty Secret of Contract Management Software where he attempted to explain the disappointing uptake in contract management software. It was pretty good, and he was right in that the uptake is not simply down to a reluctance to buy and due to a failure to achieve widespread internal adoption within many organizations that have bought. But he missed the real reason why.

According to Tim, the problem is that contract management continues to be a football, today owned by one function, tomorrow another; today centralized, tomorrow decentralized; at one moment an instrument for compliance, at the next a source of empowerment. Basically, the activities that lead to [contract] creation and management are generally fragmented. Finance, Legal, HR, Product Management, Marketing, Procurement, business unit management, Sales — all of them have an interest, yet none feels responsible.

While Tim’s observations are correct, it’s not a problem of “the buck doesn’t stop here”, it’s a problem of “where is the buck“? Even if a company appointed a head of contracts with ultimate responsibility for all contracts (which should reside in the Procurement or Supply Management department), such as a VP of contracts, you’d still have an uptake problem. Why? Because contract management systems, on their own, don’t offer much in the way of value.

But they centralize all of my contracts. So does a shared directory on the central file server. Heck, so does a filing cabinet and a little bit of diligence.

But they provide me dozens of useful contract templates. So does the CD I picked up for $5 ten years ago.

But they allow for automatic contract generation from standard clause template libraries. So does Microsoft Word.

But they allow me to query my contracts and create custom queries. So does an Access database and a high school programmer.

The simple fact of the matter is that most of what the contract management vendors sell is hot air. The real value of a contract management system materializes when you integrate it with your e-Procurement, EIPP, and/or P2P system and use it to automatically check all invoices against your contracts to make sure that

  • no off-contract purchases are accepted without appropriate management approvals, and only with good reason and
  • all charges are at contracted rates.

Then you stop maverick spending and overcharges dead in their tracks, which collectively account for the 40% to 60% of negotiated savings that are never realized in your average Procurement department. Otherwise, you’re just buying an over-priced content management system with word processing capabilities — and you might as well use Open Office and a centralized shared directory with naming conventions as the uptake will be about the same unless you can demonstrate how the software is going to result in real hard dollar savings.

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