Category Archives: contract management

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part II

Yesterday we noted that the real reason no one’s buying your traditional contract lifecycle management system has not changed in eight years. That we’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Word and Access and mad visual basic scripting skills. A situation that, to be blunt, is pretty pathetic. We also noted that, when we first addressed the subject eight years ago, SI was only able to identify one true value of a CLM system — a value that only materialized from deep, real-time, integration with the P2P (and, to be honest, only used the metadata).

Since then, SI has only identified three other sources of true value, but, as we explained in yesterday’s pst, one of these can still be accomplished by a high school student with Microsoft Word, Microsoft Access and mad visual basic scripting skills.

So when does a system provide true value? When it offers one, and preferably both, of the following:

2. Prescriptive Analytics

And we mean true prescriptive analytics. Just integrating a third party analytics platform, like Qlik, and creating some fancy reports based on standard operational metrics (like turnaround time, new contracts per month, average expiry rate, etc.) is something that can be done by the script kiddie with an open source reporting engine. And even throwing in some predictive trend analytics isn’t that valuable as their are open source libraries with dozens of textbook algorithms to throw against your data set.

We mean real prescriptive analytics that takes the data, runs the trends, compares it to a knowledge-database of standard times across companies and industries, identifies those trends that improved with the application of one or more specific actions, and recommends those actions to decrease turnaround time, automate renewal processes, negotiate better results in a category, industry, or geography, etc. True situationally aware intelligence. That’s true value #1.

3. Semantic Intelligence

Let’s say a new compliance requirement or initiative you never expected comes at you out of left field and you have 3 months to get in compliance. You don’t track any metadata associated with it, only started using clauses in the past two years that might cover the requirements, but it really depends on the variant of the clause used, the geography in which it was used, and the rest of the contract. How do you identify which contracts are likely to be in non-compliance quickly and those that definitely need human attention without actually manually reviewing each contract without a clause you are sure is safe? Of which there could be thousands?

This is where a modern machine-learning backed semantic intelligence solution that can automatically scan, parse, index, and make sense of all your contracts comes into play. A solution that can, from enough examples of sufficiently compliant and/or irrelevant contracts (across the industry, not just your company) determine those definitely not in compliance and those most likely not in compliance and give you a probability. One that can also determine those contracts that can be eliminated from review due to expiry or coming expiry and those coming up for renewal that need one or more clauses inserted and automatically identify the right personnel. One that get’s it right 95% to 98% of the time, a success rate that will be better than the temp manpower you’d otherwise have to higher.

These solutions didn’t exist 8 years ago. But now we have almost a dozen players, mostly new, with this type of functionality — which you won’t yet find in most suites. So if you want your suite CLM to have value, better find one of these new, standalone, BoB contract intelligence platforms that can integrate and integrate it. You’ll finally be able to drill deep enough to extract gold from the claim your original CLM vendor sold you, that, up until now, has proved worthless.

So if you want real value from a CLM solution, get one that embeds natively with your P2P through APIs, offers integrated prescriptive analytics, and provides you with modern semantic intelligence capabilities. Then you will truly find value that you could not find before.

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part I

… has not changed in eight years. We’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Access and mad visual basic scripting skills.

Think about the following selling points:

Centralize all of your contracts

Guess what – so does a file server with a shared root drive.

Automatic Contract Generation from Standard Clause Template Libraries

Microsoft Word Template with some embedded scripts to select the right version of the clause based on product or service category and/or supplier geography.

Quick Query and Custom Ad-Hoc Queries

An access database with the right metadata fields, indexes, and a good script kiddie.

Change Tracking during Negotiation

Microsoft Word (as long as both parties are honest) and a Shareware file difference tool (if they are not).

Secure e-Signature

Usually through integrated DocSign or another e-Sig tool anyway!

Budget/Completion Tracking on regular refresh

Regular status file export from your P2P tool and import into the access database.

Get the picture? The value of a traditional contract lifecycle management solution is quite limited, especially compared to the enterprise price tag it comes with.

The only value SI was able to identify eight years ago was if it real-time integrated with your e-Procurement / P2P solution and be used to automatically check and verify all invoices and time-sheets in real-time against the contracts before they were queued for approval to make sure they were for valid products or services at agreed upon rates.

Since that time, SI has identified only three other true sources of value.

1. Compliance Insurance

A new regulation is coming into effect, or the company wishes to enter a new region or country and needs to comply with a regulation it previously didn’t. Part of this insurance requires making sure that the supply base is (contracted to be) in compliance and/or the products or services it is buying are in compliance. This requires identifying all contracts that relate to the new move, all of those that need appropriate clauses, and all of those that might relate to products or services that need to be automatically checked.

But guess what? This can also be done on the home-grown solution built by a script kiddie with Microsoft Office. If the contracts are generated from templates, you can see which ones *have* the clauses. If the products / services are extracted into the meta-data you can quickly see which contracts have to be scrutinized. Etc.

In the end, there are only two true values that a modern contract lifecycle management solution, and it is still the case that a number of big name solutions don’t have either. What are they?

Come back tomorrow!

Dear Big Co. Here’s Why Your Contracts Suck …

… and why no one wants to sign them, yet alone even read them!

And since all contracts should be written in plain English (or, if between two parties whose native language is Elbonian, in plain Elbonian, for e.g.), at a senior high school reading comprehension level, we are going to write this post in plain English too.

They are too long. No one wants to read 100 pages of your lawyer’s hyperbole rhetoric that is, in common terms, the literary equivalent of a steaming pile of cow dung.

You read that right. No one wants to read 100 pages of your lawyer’s hyperbole rhetoric that is, in common terms, the literary equivalent of a steaming pile of cow dung.

Furthermore, at least 90 pages of this is guaranteed to be completely unnecessary (and you should feel ashamed at the money you wasted paying your high powered corporate lawyer to write it in the first place).

Let’s go back to the purpose of a contract.

To clearly specify

  • the obligations between two parties,
  • the benefits to both parties from meeting their respective obligations, and
  • the recourse available to one party if the party defaults on the obligations of the contract.

In plain English, even English written by the bard himself, how many pages does that take? Even in the most sophisticated of transactions with a list of obligations by both parties, probably not more than a few pages. (Now, if you are contracting for the construction of an office building, you might need hundreds of pages of addendums on architectural, structural, municipal, etc. requirements, but that’s not the heart of the contract. This can be clearly captured in a sentence that states party X agrees to build the structure required by party Y, as clearly detailed in appendices A through T that detail obligations 1 through 20 respectively, do so for a fixed fee of Y M, and delivery by due date, with penalties accruing at the rate of Z00 K per month. Simple, eh?)

After you’ve specified the mutual obligations, there are only three other requirements for a contract:

  1. Requirements of your Insurance Company
    If your insurance requires limitations of liability, certifications, etc. to explicitly be included for it to remain in effect, you include these requirements, and only these requirements, and only to the extent required.
  2. Requirements of the jurisdiction in which you are operating your business
    If you are doing business in the US, and you are buying technology that could possibly fall under ITAR (for example) if certain requirements are not adhered to, then it must be contractually clear that the products will be designed to adhere to those requirements. (Encryption will not exceed a certain level, etc.) Furthermore, if there are regulations against human trafficking in the supply chain, taking measures to insure denied parties do not receive financial payments, etc. that must be adhered to, then these are included as well.
  3. Requirements of any jurisdictions in which you are subject to as part of the transaction
    If the jurisdiction of the other party can imposed requirements on you, or if you plan to sell the products or services bought in a third jurisdiction, you need to include any requirements imposed by those jurisdictions.

However, this does not mean you include pages and pages of detailed requirements and regulations, that are well defined in the appropriate laws and statutes and regulations you are bound to, merely that you reference those regulations and require the other party to adhere to them. This usually requires only a few sentences per regulation, max. Not paragraphs and definitely NOT pages.

That’s it. Nothing else. And I cannot emphasize enough that you don’t include something else just because your lawyer decides there is a minute 1 in 1,000,000 risk that something could go wrong and someone with a better funded legal team could possibly find an innovative way to wiggle out of a contract that didn’t cover the obscure case of a worker tripping and skimming his knee because he stepped on a snail on the way to your worksite. Over funded legal teams under the control of people with more money than brains can always come up with harebrained arguments and ridiculous legal challenges — but how often does it really happen? Especially between two parties who were open and honest in negotiations and go into the contract fully intending to fulfill it? And is it really worth spending tens of thousands (or more) of legal time on an average contract which is usually a small fraction of organizational spend? (If an organization has 10,000 contracts and it’s revenue is less than 10 Billion, the average contract value would appear to be one million, but give that there will be a few large contracts with key suppliers that leverage volume, you’ll have a few dozen contracts in the tens or hundreds of millions and an “average” contract in the tens or hundreds of thousands.)

Remember, your lawyer’s job isn’t to tell you what to do. Your lawyer’s job is to listen to what you want to do, advise you of the risks, and then do whatever you tell him to do, which definitely includes writing short, easy to understand, contracts that people will actually sign. At the end of the day, you need to do your business. Contracts should enable that, not get in the way.

… Don’t Forget the Contract, Part V

In this series, we’ve indicated that contract lifecycle management (CLM), which is becoming big, is useless without good contracts. But good contracts don’t just happen. They have to be created through a careful process. A process that first creates a detailed SOW, then defines the risk, and then defines the dispute process and resolution options where both parties can agree. And that even defining all of this might not be enough to construct a good contract. And we proved a lot of details. And we are at the point where we asked if you do all of the above and everything it entails, can you finally start drafting the contract? And the answer is …

Well, you can, but if you do, the contract will be mostly harmless, and that’s just not good enough. There’s still a few things that need to be figured out first. Possibly a few dozen things, but the following is a starting list.

Performance Monitoring and Rights of Action

Specifying acceptance criteria and performance requirements of each product, service, and deliverable, as well as corrective action requirements on failure is a great start, but there should be performance improvement requirements if performance is not, or barely acceptable, in the beginning or starts to go downhill. One should not have to suffer a supplier continually being late or underperforming just because they continually correct their mistakes at the 11th hour.

One needs to be sure to specify actions that can be taken or retributions that can be demanded if one party repeatedly fails to meet their agreement. In addition, the contract should also specify that both parties may maintain performance data beyond the contract and consider such performance in future sourcing events and contract negotiations.

Unpredictable Events

There’s force majeure, and then there is the collapse of the only mine the supplier has at their disposal, the banning of a product, component, or raw material in your target market, or some other unforeseen, and totally unpredictable event that makes it impossible for one or both parties to continue the contract.

In addition to a solid force majeure clause, there must be an explicit specification of what could constitute an unpredictable event that is contract ending.

Unalterable Order of Precedence

There will be a contract. Appendices. Statements of Work. Addendums. Etc. At some point, contradictions, real or perceived, will creep in. All your hard work to try and prevent disputes that can lead to unforgiving arbitrations or costly litigations could be for naught! Be sure to specify in a clear, and unarguable manner, which document will take precedence in the case of conflicts.

Then, you have to get in the right mindset and figure out how you will ensure the following will be the case when you actually draft the contract.

No double (or triple) negatives anywhere. NO EXCEPTIONS!

Let’s face it. The more negatives, the more opportunity for misinterpretation. A lawyer might understand a 73 word sentence with 3 negatives, but will an average person? Probably not. And if all lawyers fail to understand equally, this could not only be used as a foundation for a lengthy, and costly, litigation that could easily be settled via arbitration but also result in an extremely costly decision not in your favour.

No reliance, or lack there-of, on Oxford Commas

The lack of one single Oxford Comma cost Oakhurst Dairy millions, and it will cost you too. (Source) Every condition should be clearly specified, and where there is any ambiguity, bullets, numbers, or smaller sentences should be used. Lawyer preferences be damned.

No sentences or paragraphs that cannot be shortened for clarity.

Remember your goal that this should be easily readable, and understood, by anyone with a high school diploma. So, if you can simplify it, without losing any meaning or detail, do so.

If you can address the key issues above and figure out how you are going to meet these key drafting requirements, then, and only then, are you ready to start drafting your contract.

But are you ready to complete it? That’s a good question and the answer is …

… Don’t Forget the Contract, Part IV

Contract Lifecycle Management (CLM) — which includes contract creation, management, analytics, and renewal — is becoming big and will likely get bigger still as organizations rely more and more on contracts to control price and mitigate risks. But, as we also pointed out in our first post, contract lifecycle management system is not only useless without contracts to manage, but is also useless without good contracts to manage.

And as we indicated in our second post, good contracts are more than just specifications of product, price, and a few boiler plate T’s & C’s provided to you by legal. A good contract is understandable — by both parties, and, especially, by a party whose first language is not the contract language. And, as we detailed in our second post, it clearly describes the need, which is first captured in a detailed statement of work that the contract will be created around.

But it doesn’t stop there. As detailed in our third post, it also defines the risk, how they are dealt with, who is responsible for mitigation and management, and who has to take action — and responsibility — should a disruption or issue arise. And, more importantly, it doesn’t include an open-ended force majeure, and should a force majeure event happen, it gives both parties a way to continue business, and an out if one party just can’t recover.

But once the Statement of Work, and the risks, are defined, do you start writing?

Nope! You’re close, but you still have to figure out what you will do when things go wrong — and capture how they will be addressed, and resolved, in detail in the contract. This is more than just choosing between arbitration and court, because the choice could be both, or neither, depending on the situation. And it’s more than just specifying the method of resolution, it’s all the terms and conditions around it that specify exactly how you want it handled.

Let’s start with arbitration. Just because you specify arbitration and the counter-party agrees to it, doesn’t mean there can’t be a court case around who the arbiter will be, what powers she will have, who will bear the cost, how binding the decision will be, whether or not there can be any appeals on technicalities, and so on.

You need to figure out who will chose the arbiter, what will be mandatory for arbitration, where the arbitration will take place, and what time limits there will be in initiating, conducting, and concluding the negotiations. Who will be responsible for the cost, under what conditions, and in what amounts or percentages must also be clearly defined. Furthermore, any rules or guidelines that are to be followed by the arbiter are to be completely spelled out. As are any laws they are to be adhered to in any details of the resolution.

Then, you need to specify the terms and conditions around legal action. Legal action should be the last resort, and the contract should be iron-clad forced arbitration wherever it can, and should, be used as litigation is unnecessarily expensive and not always fruitful. Arbitration may not be fruitful, but it’s quick and much less painful even if it doesn’t go your way.

Make sure that litigation opportunities are as limited as possible and that any litigation that could have been avoided, or that is determined by the court to be in violation of the contract, is at the full cost of the party who wrongly initiated the litigation. And make sure that if litigation is authorized, damages are limited to actual monies paid or maximum amounts clearly specified in the contract. And that parties who are responsible for products or services, and any damages that result from these, have appropriate amounts in bonds or insurance to cover worst case scenarios.

And, most importantly, the dispute resolution process must be fully specified in the contract to ensure that the chances of arbitration or litigation being needed are absolutely minimal. If the process is accepted by both parties, it will be embraced by both parties, and even if both parties can’t agree, they’ll try — and each will be much more likely to live with the decision of an arbiter, since they will also have thought through, negotiated, and accepted that process as well.

So, now that you’ve figured out the SOW, the risk management and mitigation, and the dispute resolution, can you start writing the contract? Stay tuned!