In 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, as noted in our last two posts, Part 22 and Part 23, most of the definitions, and the implemented capabilities, tend to fall into three categories: Negotiation, Analytics, and Governance. Two days ago we started by breaking down negotiation and yesterday we tackled analytics, so that just leaves governance. So today we’ll tackle governance.
Before we continue, we should point out that what we are calling contract governance includes the baseline functionality that many people used to call contract management in the early days, but since
- the capabilities of contract systems have multiplied and varied significantly since the early days, resulting in the definition of management being too jumbled and nebulous to be useful and
- management is more than just an electronic filing cabinet, especially when an organization really needs is control of, and by, the contract (which is an archaic definition of governance, by the way)
what we are really talking about here is not nebulous “management” but true contract governance, and a foundation for relational governance as part of an organization’s GRC (Governance, Risk, and Compliance) strategy (but that’s beyond this series).
Finally, please remember that this is not meant to be an exhaustive list of capabilities you may find, or need, but a starting list of capabilities that should be present in any tool you are considering.
indexing and classification w/ full doc management capability
At its foundations, a governance solution must support full document management functionality with deep indexing and classification support for contracts. And that indexing must be customizable to the organization for fast location of contracts by customizable hierarchical indexes, key metadata, filters, and easy searches.
obligation, deliverable, and expiration tracking and management
The entire point of contract governance is ensuring the contract is executed because, while you may want a SaaS solution configuration to be “set and forget”, that’s the last thing you want a contract to be! While you want to trust your supplier, you also want to verify that the obligations are being met, on time and to spec, the billings are done for agreed upon rates, to the payment terms, and any issues are appropriately addressed and adequately resolved within the specified timeframes.
This means that obligations, deliverables, and expirations need to be tracked, their current state maintained at all time, and issues need to be easily surfaced and reported on.
alerting & notifications
In addition to constant monitoring, the platform must also support the definition of custom alerts and notifications, with email/instant messaging support and escalations through channels and notification chains if issues (such as deliverables being late, disputes going unresolved, etc.) are not resolved within a timely fashion.
amendment and addendum management
Few contracts, especially in the project / services category, survive their lifespan without needing at least one amendment (or addendum) as a result of a needed change order, so it’s critical that the solution support amendment and addendum management as well.
equal support for buy-side and sell-side
We really shouldn’t have to say it, but a contract governance system should govern ALL contracts, both buy and sell side. You have obligations, deliverables, terms and conditions on both types of contracts and need to manage, monitor, and report on them both on a regular basis.
The goal of a good contract negotiation is to end up with a contract that both parties are comfortable with, agree to, and are willing to execute to the dotted i’s and crossed t’s. However, despite the best of intentions, sometimes misunderstandings will arise, and these could lead to disputes. [And sometimes the best of intentions were not in the hearts of all people on one, or both, side(s), and issues are going to arise, and some of these issues are going to turn into disputes.] Disputes need to be resolved, and the process needs to be managed, the communications tracked, and the resolutions and agreements archived in an effort to prevent the disputes from recurring.
Contracts are for goods or services. Contracts for goods are for goods for use or goods for resale. Goods for use fall into two categories, consumables, which should be managed as inventory, and durables, which are used for execution of the business (like furniture, machinery, electronics, etc.). These durables are typically assets and should be tracked and managed in conjunction with the contracts that governed their acquisition (and their warranty and associated services, etc.). And while there are separate asset management systems, and the organization may prefer to acquire and use one, you still want the link between assets and contracts because, chances are, the asset management system will generally not maintain that link.
Services contracts are generally for the implementation and delivery of projects with multiple phases, deliverables, and obligations, which need to be managed … like a project. While the organization can choose from a multitude of traditional project management solutions to manage the project, the project should not be managed independent of the contract, so a good contract governance solution should contain at least standard project management capabilities.
The entire point of a contract is to manage spend, and, hopefully, stick to the budget. So while your e-Procurement solution should support, and monitor spend against, the budget, it’s also very, very, useful if the CLM solution can, on a regular basis, import spend and monitor spend against active contracts and show performance against budget for all contracts in a category, for a supplier, etc. so that an organization can see if the contracts are keeping the projects and categories on budget, or not.
event monitoring (re obligations, deliverables & clause triggers)
While you likely have solutions that monitor external events that might impact your suppliers, or your organization in certain geographies (natural disasters, political events, new regulations, modified tax/tariff/custom rates, etc.), how many of these monitor events and identify those that might impact specific contracts? Likely none. That’s why a good governance solution will import this event data from these solutions and associate it with contracts, and then use the alerting and notification capability of the platform to let you know when a contract (obligation and deliverable) might be at risk.
Next up: The Vendor List in Part 25!