Daily Archives: July 27, 2015

Contract Lifecycle Management V: Do You Know What The Must-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most tedious acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know it’s a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t, tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In our last post in this series we discussed that neither sourcing nor procurement were enough because Contract Management, the core platform powering CLM, is not (traditional) Sourcing, which is the process of identifying a source of supply. Nor is it (traditional) Procurement, which is the process of acquiring products and services that have, in many cases, already been contracted for. Contract Management is the end-to-end negotiation, execution, and implementation of contracts that also supports performance, compliance, relationship management, and, when it happens, dispute management and corrective actions. And as a result, it requires a platform with the right mix of core and supporting capabilities. In today’s post we’ll list the core capabilities and discuss a couple of them, but for the full picture, you’ll need to check out our in-depth piece on Core Contract Management over on Spend Matters Pro [membership required].

The following capabilities are core:

    • Contract Library (& Document Archival)

    • Template Management

    • Key Contractual Data Element Search & Discovery

    • Tamper Protection for Signed Documents

    • Security

    • Amendment Control / Change Management

    • Audit Trails

    • (XML) Data Import & Export

    • Contract / Document Authoring / Versioning

    • Obligation Management

    • Alerts

    • Reporting

    • Expiry & Renewal Management

Most of these you probably expect, and for some of these you probably have some idea why, but a few of these are probably unexpected, including expiry management and obligation management. We’ll discuss these, but refer you to our in-depth piece on Core Contract Management over on Spend Matters Pro [membership required] for coverage of the rest. (However, the must-have, should-have, and nice-to-have function lists will be made, and remain, public as they are the common measuring stick that both Spend Matters and Sourcing Innovation will be reviewing and measuring vendors against going forward.)

Most people overlook the importance of contract expiry and renewal management because they figure that once a contract is over, it’s over, and no longer needs to be managed. That’s only the case if the contract is truly over, there are no future obligations, and, most importantly, the contract doesn’t automatically renew unless explicitly cancelled in writing. Without a good contract management system with auto-renew detection and expiry management, many organizations suffer evergreen contracts that lock them into above-market rates for outdated and inferior products because they don’t realize an evergreen contract exists until after the final date for termination has passed and they are locked in for another one to three years. Maybe your buyer got tired of constantly negotiating the office supplies contract and believed that getting 20% off of MSRP was a smashing success and locked in an auto-renew clause that said, if not cancelled in writing by the buying organization within 30 days of contract expiry, the contract would auto-renew for another year, under the same terms and conditions, at the same rates. But if the buyer, who didn’t do his homework very well, didn’t realize that the MSRP rates were 40% more than the vendor’s cost, then the vendor is, of course, going to let this contract coast forever (especially since the organization is providing double his typical profit margin as compared to his big GPO clients that negotiated 30% off MSRP), and the organization will likely be automatically locked into a renewal that is costing it an extra 10% on office supplies.

Similarly, most buyers or category owners often feel that obligations are the responsibility of the supplier, so obligation management isn’t that important. But even if everything is the responsibility of the supplier under the contract, it is still up to the buyer to insure that the supplier meets their obligations. Specifically, if there are insurance requirements then the buyer has to make sure the right policies are in force (or risk opening his organization up to multi-million dollar lawsuits). If there are compliance requirements, the buyer has to make sure that the right tests, reviews, or approvals are in place before the products are shipped or sold (or risks goods being delayed, seized, or even destroyed at the border). And if the organization needs to acquire, or renew, licenses to meet its end of the contract, it has to make sure it does so at the right time (or risk losing access to critical IP or software tools).

And even though we only called out renewal and obligation management, each and every other core capability listed above is just as critical and to understand why, and what the platform has to support with respect to that core capability, check out
Core Contract Management over on Spend Matters Pro [membership required], Part V of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.