Category Archives: contract management

It’s Easy to Get Lost in CLM — But Don’t Forget the Contract! Part I

Contract Lifecycle Management — 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. And since no one can ever find a paper contract once it’s been sent to filing, the ability for anyone anywhere at anytime to access a relevant contract, compare deliverables and prices to negotiated deliverables and prices, track (evergreen) renewals, and determine which party is responsible for a loss is almost priceless.

That being said, a contract lifecycle management system is not only useless without contracts to manage, but is also useless without good contracts to manage. Poorly created contracts that don’t define anything more than a bulk price and a term don’t ensure defensible pricing, loss management, or risk control. Nor do they ensure termination, as evergreen status could be implied if orders are still made after termination and pricing is still honoured. Nor do they even imply that the supplier even has the right insurance or certifications to even produce or ship the products the supplier is selling to you.

In order to control risk, mitigate loss, and realize the expected benefits, a good contract is critical. This not only requires good negotiation, but good contract drafting that covers all of the necessary T’s and C’s, including those you never hope to need. All of them. And, more importantly, that spells out all of the requirements of both parties in terminology that cannot be easily misinterpreted or twisted by leeching litigious lawyers who will bleed both parties dry in legal fees before an agreement or decision is reached.

So how do you get a good contract? Well, as the legendary Dick Locke once wrote in our classic post on Blogging on International Contracting, not only should your contracts be in plain English, but they should be written with a high reading ease score (40 or more in Microsoft Word) and a grade level requirement of 11 or less. Especially since the contract is not likely to be in the supplier’s native language if the contract is with an international supplier.

After all, as Mr. Locke so keenly pointed out in a follow up piece on Simplified Contracts, Part 3, if you let a litigious lawyer write a contract from a supplier with a slimy sales team, he could easily insert just one word in a twenty page contract with an average sentence length of 73 words and paragraph length of half a page that negates the entire contract, and you’d never know.

So how do you write a good contract? We’ll explore that in this series.

Seal Software: Breaking the Seal to Identify Contract Value

Seal Software is a provider of contract discovery and contract analytics software that is different than your standard CLM (contract lifecycle management) module built into your e-Sourcing or e-Procurement suite (which is designed to negotiate and track contracts, awards, milestones, and related documents). And unlike many CLM providers that just focus on Procurement, Legal, or Sales, Seal Software is designed to support Legal, Procurement, Sales, M&A, and IT — making it a fuller enterprise CLM solution than many of its peers. In fact, in large organization with tens of thousands of contracts, Seal Software is often used in conjunction with a traditional CLM solution.

This is because Seal’s strengths of contract discovery and contract analytics are quite unique. Seal’s contract discovery capability can automatically locate existing contractual documents wherever they may reside, automatically extract key contractual terms and clauses, and automatically populate other corporate solutions including Customer Relationship Management (CRM) and Contract Lifecycle Management (CLM).

The discovery engine can handle multiple file format types (text, doc[x], PDF, jpg, etc.) and work across local hard drive, network drives, file shares, and even cloud-based repositories — anything with a UNC path or API is accessible. It then uses advanced semantics and machine learning to analyze the contracts and identify the clauses and critical information that the organization has deemed to be of interest.

It does this by comparing all files discovered to standard contract templates and identified organizational contracts to find contracts. It then determines the type, category, and whether or not it is a (potential) duplicate. Finally, it runs all (unique) contracts through descriptor templates that identify and extract the clauses, terms, and date elements of interest.

But the power of Seal only starts at discovery. Once the contracts and elements are identified, the analytics solution not only allows the user to access all contracts that meet a specification or search; filter down based on timeframe, search, or other elements of interest; and create reports, but to also identify all contracts that contain clauses or terms of interest that were not previously of interest. If all of a sudden a new regulation comes into effect and the organization now has to determine whether or not all of its contracts are compliant with a new privacy requirement or contain clauses to ensure compliance. All the organization has to do to find all contracts with a relevant clause, paragraph, etc. is find a few contracts with clauses and sentences of interest, define any additional phrases or terminology of interest, and tell the system to re-process all contracts and it will find all contracts, structured or otherwise, that contain associated phraseology. The semantic engine can learn from examples and key-phrase definitions.

And the analytics can be used during negotiation and review too. The platform allows for the definition of policies that will auto-detect clauses and phrases in suggested revisions that can alter the intended meaning of the actual contract and bring them to the attention of the reviewers. It can also highlight contract areas using non-standard language or language identified by legal to be (high) risk. And this review can be done in the contract creation platform of choice. Seal’s newly released Analyze this Now capability allows links to be embedded that send the contract to seal which sends back a marked-up highlighted docx file that highlights everything of interest and concern. (In Microsoft Word, it’s a simple plug-in.)

It’s a very powerful solution for large (global) organizations that often have well over 10,000 or even 100,000 contracts that need to be tracked, analyzed, maintained, and negotiated in accordance with a plethora of business rules and industry (and government) regulations. When you consider that even enterprises with revenues below $250M have an average of 8,000 Procurement contracts (as per Aberdeen Group), most of which are not in the e-Procurement system (and not effectively managed and tracked), the importance of discovery and analytics cannot be underestimated.

For a deeper dive on Seal Software, and its capabilities, see the recent Pro series by the doctor and the prophet over on Spend Matters (Part I, Part II, and Part III) [membership required].

Agiloft — For those with Lofty Ambitions for Contract Management Agility

Agiloft is another rare breed in the Supply Management space. It’s ancient (as it was founded in 1991, only a year after the first web browser was invented), it was founded to be a back-office B2B enterprise application (and their main offerings are service desk, workflow & business process management, and contract management), it’s debt-free, it has a large network of resellers, it has multiple global hosting locations (to support local privacy laws or government & military security requirements), and you can have it anyway you want: pure (low-cost) multi-tenant SaaS, classic ASP, or even on-premise with your choice of two different platforms (Windows or Linux). [Hint, choose the 2nd.]

Obviously, in this post we are going to focus on the contract management solution, as that is the most relevant to Supply Management, and the related BPM and Workflow elements they have in their Workflow and BPM solution to support it as well as their Asset Management capabilities. While the ability to use a single vendor for multiple “back office” B2B applications might be attractive to some organizations, our specialty here at Sourcing Innovation is Supply Management and Supply Technology Innovation, and that’s what we will cover.

The contract management solution supports contract creation, negotiation, approval and renewal. It contains a searchable central repository with double-byte language support and automatic audit trail for regulatory compliance, clause libraries, Word templates, and Word integration. In addition to Word integration, it also provides a complete API and and bi-directional pre-built integration with systems such as AD, SAML, Oauth, SSO, SalesForce, MS Exchange, DocuSign, QuickBooks, and Xero.

The contract creation is not only flexible, but so is the complex review and approval routings that can contain a combination of sequential, parallel, and conditional approvals. Agiloft’s ability to create and support complex, customizeable, business processes and workflows make complex creation and approval processes a snap. Furthermore, in addition to complete version history (and automatic redlining), it also supports a complete audit trail of those changes, built in OCR that can process attached image files, and fine-grained security that can control access by user group down to individual fields in a contract record.

It can easily be configured to support any industry and regulatory requirements that the organization has to support (or wants to support) by way of additional data capture, workflow modifications, mandatory checks and required approvals by appropriate risk management personnel. It can also be integrated tightly with asset management and each asset affected by the contract can be correlated with the contract, and each contract that references an asset can be correlated with the asset. This last point is particularly relevant as some assets can be shared across contract if they are only needed for short periods of time (such as excavators on construction projects).

However, as of now, any organization that has regulatory or compliance needs, requirements to track additional types of compliance, insurance, or audit documents has to define the requirements, create tables to track the necessary data and documents, define the relationships, create the monitoring tasks, create the notification templates, hook the notifications up to email, and so on. The wheel has to be re-created in each and every organization that needs to track a specific requirement. The platform needs the ability to capture and store common tasks, workflows, and components in a repository that can be accessed by any and all customers and included in individual instances as needed. Agiloft plans to release a community next year that will allow customers, consultancies, and anyone on the platform to export and share custom capabilities that they have created, and this is a good start, but it would really quicken start up time if this functionality was there.

That being said, the configurability of the solution (and the speed at which it can be configured by their services team) should not be overlooked. Consider the example of Enki(.co). Enki is a cloud services provider that was founded by the former NetSuite CIO and Director of Engineering. They spent 6 man-months customizing NetSuite for contract management, sales, and support, but never realized their vision. They eventually replaced NetSuite with Agiloft, and managed to customize it to their needs in 10 days, going live a week after that. In other words, the platform can be customized to the needs of most organization’s in a matter of weeks, but only by an experienced configurator. (However, once someone in the organization goes through about a week of training with Agiloft, they will learn to maintain and customize the platform at close to the same speed going forward.)

Agiloft is a great fit for those organizations that have some supply management capability (in front end strategic sourcing or back end procurement / procure to pay) but do not have good contract management and need a good CLM tool to serve as a foundation for their Supply Management processes. The ability to define the required contract lifecycle and sync with other platforms makes it a great central system for any organization that does not have, or cannot acquire, a fully integrated source to pay suite (as it can manage workflow across applications).

On the Fourth day of X-Mas (2016)

On the fourth day of X-Mas
my blogger gave to me:
some CLM Posts
some Best Practice Posts
some Trend Bashing Posts
and some ranting on stupidity …

Contract Lifecycle Management. It’s a mouthful. It sounds awfully boring. But if you do it poorly, you might as well just kiss 30% of your negotiated savings goodbye the minute you sign the contract. Poor execution against sourcing plans captured in contracts is the big reason why 30% to 40% of negotiated savings never materialize in an average organization so, if you want to win big, you have to manage the contract lifecycle right.

Why You Should NOT Build Your Own CLM … even though a high-school student with Microsoft Access can build a basic contract management system, a true contract lifecycle management system done right (and done right is the real caveat) takes a lot more work than you think …

Do You Have Your Platform and Process in Place? Be honest!

A series on CLM:

I: Do You Know What It Is?
II: Do You Know Where it Starts and Ends
III: Do You Know Where it Came From
IV: Neither Sourcing Nor Procurement Are Enough
V: Do You Know What The Must-Haves Are
VI: Do You Know What The Should-Haves Are
VII: Do You Know What The Nice-to-Haves Are?
VIII: Are You Ready for the Journey

The Strategic Category Management Lifecycle:

Getting it Right, Part I
Getting it Right, Part II
Getting it Right, Part III

Enterprise Contract Management … more than just an electronic filing cabinet!

Come back tomorrow for the fifth day of X-Mas.

For Most Organizations, Ain’t Nothing Wrong With Being White & Nerdy …

In a recent post over on Procurement World, the procurement dynamo asks if the Kraljic Matrix [is] Actually Becoming Obsolete? He notes that since Kraljic published his classic article 33 years ago, world trade has quadrupled, globalization has exploded, and Procurement is operating in a much faster, bolder, world than it was in 1983.
In this brave new world, Procurement has to manage ethical supply chains and practice good Corporate Social Responsibility, or its CPO could be personally convicted of criminal charges and end up behind bars. (While this is a great place for many sociopathic CEOs, it’s not where ethical and hard working CPOs deserve to be.)

the procurement dynamo notes that, in some ways, the Kraljic matrix still works well. The heart of the Kraljic matrix, segmentation into manageable buckets that can be addressed with consistent strategies, is still valid, but the degree of segmentation needs to be much deeper now than it used to be. However, even the concept of a 3-d Rubik’s cube doesn’t quite capture the level of segmentation required in today’s supply chain.

It used to be supply risk and financial risk was enough. Now there is information risk, sustainability risk, compliance risk, ethical risk. That’s significantly more than a cube can handle. (We’re at a six-dimensional hypercube, and we’re just starting.) That’s why we have to adopt Value Based Sourcing and replace TCO (Total Cost of Ownership) with TVM (Total Value Management), which is the root of all value models.

This is challenging, as the procurement dynamo points out, but not impossible, especially for the White & Nerdy. It doesn’t matter if they look like they are still in the 80′s, insist on riding segways down the hall, or shout blasphemies in Klingon while trying to solve the problem. As long as the problems get solved, which only the IQ and TQ-savvy white & nerdy can do, that’s the way forward.