In our last post, Part 21, we noted that after Supplier Management came Contract Management because the only way to lock in the opportunity was to get a contract signed on the bottom line. However, like Supplier Management, Contract Management isn’t consistent across vendors because each has a different idea on what Contract Management actually is … and sometimes isn’t. (And most vendors are jumping on the AI bandwagon faster than fleas on the only stray dog in town, but that’s a rant for another day, or week — there’s so much absurdity here.)
However, most of the definitions, and the implemented capabilities, tend to fall into three categories: Negotiation, Analytics, and Governance. So these are the three categories we will tackle, and breakdown at a high level one-by-one, starting with Negotiation.
Negotiation platforms revolve around authoring, negotiation, and signing — and seem to think the need is met when the ink is dry (which it’s not, but we’ll discuss that in our next two instalments). Within this category, they tend to focus strongly on either template libraries, clause libraries, or AI authoring support; collaboration features to allow for team-based creation and multi-party redlining; and/or change management and/or e-signature support.
Note that key capabilities of templating, collaboration, change management, and e-signature are (also) needed for full negotiation support, and the value only shines through when certain capabilities are well thought out, deep, and complete. But not all capabilities are necessary to meet the baseline, so we will separate out our discussion of capabilities into basic and advanced.
A decent Contract Negotiation Management system needs to support contract templates that can be indexed, copied, loaded, and used as the initial draft of a contract once the parameterized fields are filled in, either by automatic pull from a connected e-Sourcing / e-RFX system with the data, or through a wizard that allows a user to quickly complete a draft from the template for the supplier through the definition of a small number of fields and the inclusion of attachments as necessary.
These templates can be static, or automatically assembled from clauses in a library using manual selection based on clause requirements, assembled using hybrid AI that uses a set of clause specifications and meta-data to find the right clauses in the library, or fully drafted using AI and only the demand forecast, final bids and the winning supplier as inputs.
Clause Based Contract Construction / Modification
In addition to supporting templates, the contract negotiation tool should also support clause libraries, preferably with multiple clause versions when the organization needs to work with suppliers in multiple geographies where different regulatory requirements need to be adhered to, and indexes by geography or any other data dimension that may require standard clause variants (such as industry, product/service category, etc.)
While collaborative authoring, or even authoring support, is not required within the platform if the platform supports Word documents (and the contracting personnel work in Word), it must at least support difference and change tracking and contract redlining from one version to the next.
If the tool is a contract negotiation tool, then it must support negotiation. However, the baseline support is simply the ability to export a document to send in an e-mail to a supplier, who returns a document, that is then imported, compared to the previous version, and the changes redlined for review. A better platform allows the contract draft to be shared from within the platform and the supplier to either do their redlining with the platform, or upload their redlined contract to the platform, while maintaining a full audit trail of activity by both parties and a basic chain of document custody. More advanced platforms, will embed AI to make suggestions at each step of the contract.
A contract is not a contract until it’s signed. A core requirement of a Negotiation platform is support for one or more recognized e-Signatures like Adobe or DocuSign. A platform can also support a vendor’s proprietary e-Signature solution if it meets the regulatory requirements and is acceptable to both parties.
equal support for buy-side and sell-side
While the chances are that your organization will be forced to interact with the buyer’s system and process when you are trying to sell, sometimes you might be able to use your system and paper, especially when it’s a new category / atypical purchase for the buyer or they don’t have a good system to manage the process.
Auto contract type / clause identification & extraction for counter-party paper
At a basic level, most contract negotiation platforms only support organizational contract creation, not counter-party paper which is critical if the supplier has the leverage and will only use its own paper, or the organization needs to fast-track a buy for a product or service it doesn’t have a template for and needs to start with counter-party paper.
A key capability here is automatic contract type identification, clause identification, term and obligation identification with associated text-based extraction and auto-indexing using advanced semantic technology.
Auto clause suggestion based on geography, supplier, product/service, regulations, etc
At a basic level, the authoring capability needs to support templates and clauses, but a good negotiation solution will use contract meta data and key indicators to recommend the required clauses, and the preferred version. This doesn’t necessarily mean, or require, anything close to AI as a rule-based expert system designed / tweaked by experts can be the perfect solution for most organizations, but could include machine learning that learns user preferences over time and tailors its suggestion to the user (and not the organizational defaults). Regardless of mechanism, an advanced negotiation platform helps the user author their contract.
All negotiation platforms must support authoring, but collaborative authoring is not an absolute requirement. However, it’s very useful when a team can collaboratively comment on, and even edit, a draft of a contract before it is locked down and sent to a supplier, especially if specific expertise from a large group of people is needed in various parts of the statement of work, appendices, etc. for complex direct manufacturing contracts or complex project contracts.
Dynamic Templates / Template Generation
Templates are a must, but all classical platforms had, and all basic platforms have, is static, user / vendor constructed templates. A modern ML/AI enabled platform will, based upon the responses to a few questions, category metadata, and chosen supplier, automatically generate a template that takes into account this information, the geography, the industry regulations, and other known factors and automatically generate a starting template using all available clause templates and variations to build a template expected to be as close as possible to what is needed to quickly draft the contract.
Word / Email Integration
The final advanced feature is integration with Microsoft Word to allow contract editing, change tracking, and redlining inside every lawyer’s favourite tool (Microsoft Word). Similarly, it should integrate with the organization’s email platform to allow contracts to be directly sent through email from within the platform, and when the supplier returns them, automatically identify and extract them back into the platform, with versioning and an audit trail generated automatically.
And the best platform should also support every buyer’s favourite tool — Microsoft Excel — for the creation of the pricing schedules, associated timelines, and charts.
This is not all of the features that a Negotiation platform could possess, and not even all of the features that a modern Negotiation platform should possess, but the baseline of what it must posses to support baseline functionality and more advanced functionality for efficiency and effectiveness.
Next Up: Contract Analytics in Part 23.