Category Archives: contract management

Nextance: Next Generation Contract Management

In our last post, we tackled the subject of Enterprise Contract (Lifecycle) Management. In this post, we are going to discuss Nextance (acquired by Versata Enterprises) – one of the more innovative players in the contract management space and one of the few players trying to tackle the breadth and depth of Enterprise Contract Management. With the recent release of their new Proposal Management Software, Nextance is extending their enterprise footprint – which is quite respectable. This module complements their contract authoring, contract management, and business management modules which provide solutions for sales, procurement, legal, and intellectual property.

Nextance, which is bound to have some cool new announcements and campaigns in the near future (since July starts their fiscal year), recognizes that there is a large gap between contracts and financial processes in many companies, and specifically between contract creation and revenue tracking, and is endeavoring to close that gap. Its contract management solution allows you to define event triggers around milestones, orders, and invoices for compliance purposes and its business management solution allows you to determine all of your contractual spend for the current or coming quarter.

That’s why Nextance is currently focussed on contract lifetime value optimization. Most companies have significant value locked up in their contracts, and without the tools to track, manage, and extract the value, it will go untapped. In order to obtain the savings you negotiated in a supplier contract, you need to make sure you’re paying the contracted rates and not a penny more. In order to keep your profit levels up, you need to insure that your customers are paying you at contracted rates, and not at an unauthorized discount. In order to maximize the value of your IP, you need to be able to keep on top of the IP assets you have and effectively market and license the technology.

However, the greatest benefit a well-defined and well-managed contract can provide is risk mitigation. If you’re competing in an open marketplace, you can usually get a good price – especially if your supplier knows you can switch (or you threaten to). If supply exceeds demand, you don’t have to worry about supply availability. If you have a relationship built on trust and collaboration, chances are you’ll never need to refer back to the contract to settle a debate. But if you’re in a closed marketplace, if demand exceeds supply, or if there is the potential for distrust on either end of the relationship, then risk becomes an issue – and the way to prevent against it is to mitigate those risks up front in a contract.

And now that Nextance tackles pretty much every major business function except HR, and handles the contract process from the proposal stage all they way through to active compliance management, they are in a prime position to start tackling contract-based risk management. And when you factor in their strong XML foundations, Microsoft Word integration, advanced search, and strong reporting capability, it becomes a solid foundation for building contracts that tackle risk and determining whether or not your current contracts leave you exposed to newly identified risks.

And considering that most of Nextance’s implementations are large deployments throughout multiple departments, if not the entire enterprise, on a national, international, or global scale with thousands of users, and in some cases hundreds of thousands and users, you know they can support the scalability needed to capture all of the information needed to make risk mining a possibility. There are very few other companies that can claim the size and breadth of the deployments they have and it should be interesting to see how they fare against the other niche best-of-breed vendors, such as the Emptoris (acquired by IBM, sunset in 2017) Dicarta solution, iMany (acquired by LLR Partners), and Upside Software (acquired by SciQuest, rebranded Jaggaer). I think that they’ll definitely be a very interesting company to watch this year and I am a little anxious to see what they announce first.

Enterprise Contract Management

Contract Management (CM), sometimes known as Contract Lifecycle Management (CLM), can be simply defined as the management of contracts made with customers, vendors, or employees. (Wikipedia) From procurement’s perspective, contract management is the process of tracking contracts to determine who you should be ordering from, when, and at what price;

and ensuring that your suppliers are adhering to the agreed upon terms. From a legal perspective, contract management is the process of ensuring that you are using standard terms, that risks are mitigated, and that contracts are in place for at least all key relationships. From a sales perspective, contract management is the process of dotting the i’s, crossing the t’s, and making sure payment terms and dates are clearly specified.

In my first post on contract management, I overviewed some basic features of a C(L)M system, including searchable centralized contract repository, collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and template and clause-based contract creation capabilities. In my second post, I noted that Enterprise Contract (Lifecycle) Management (EC(L)M) offers advanced features beyond basic contract tracking, including collaborative capabilities, workflow capabilities, monitors, alerts, reporting, and template and clause-based contract creation capabilities.

However, I feel I’ve yet to capture the essence of Enterprise Contract Management. An Enterprise Contract (Lifecycle) Management solution is one that captures the holistic view of contract management from the enterprise perspective. It’s a solution that lets you do full Contract Information Management (CIM). Just like a true Supplier Information Management (SIM) solution lets you capture, manage, query, and create initiatives around your supplier information, a Contract Information Management (CIM) solution lets you capture, manage, query, and create initiatives around your contracts and all of the information that pertains to them.

With a true Enterprise Contract (Lifecycle) Management solution, you’re not only managing your contracts, but you’re managing the information that is within the contracts and related to the contracts. It’s being able to not only find the contract for the part you need, but share that information with your sourcing and procurement systems for automated compliance verification of invoices. It’s about being able to not only create standard terms and conditions in your contract templates but being able to annotate them with the reasons therefore. It’s about being able to determine not only what contracts are about to expire, but what risks you are open to with respect to your current contract base with respect to liability, supply stability, and corporate social responsibility. It’s about being able to drill down from a supplier contract into relevant supplier data and performance metrics to determine compliance. It’s about being able to drill down from your customer contracts to your delivery information to determine delivery statistics. It’s about being able to determine whether or not you are violating any labor regulations with respect to your temporary labor or out of compliance with International Labor Organization standards or Corporate Social Responsibility policies. Its about being able to truly manage your operations off of your contracts, and not just about being able to determine compliance and performance after the fact. After all, you can’t be defined by your contracts if you cannot effectively execute against them.

In our next post, we’ll examine Nextance (acquired by Versata Enterprises) one of the pioneers in the Enterprise Contract Management movement.

Procurement Contract Risk Management

As pointed out by JP Massin in his Strategic Sourcing Europe [WayBackMachine] blog, APICS and Protiviti recently released a study on “Procurement Contract Risk Management”.

As noted by JP Massin, the conclusion is that a large proportion of organizations need to improve the management of their procurement contract risks and opportunities. And this seems to hold true across the board, for direct and indirect procurement alike.

The study does a great job of pointing out many types of procurement contracts management risks you should be aware of:

  • End-customer satisfaction risk
  • Authority limit risk
  • Regulatory non-compliance risk
  • Information security, access, and privacy risk
  • Terms and Conditions risk
  • Reputation risk
  • Environment, health, and safety risk
  • Inventory and obsolescence risk
  • Off-balance sheet inventory liability risk
  • Automatic renewals risk
  • Contractual and legal risk
  • Employee/third-party fraud risk
  • Outsourcing risk
  • Efficiency risk

It also does a great job of pointing out some key capabilities a company will need to tackle these risks:

  • Strategy and Policy
  • Processes, Practices, and Procedures
  • Organization and People
  • Contracts Management Process
  • Information Methodologies / Tools
  • Systems and Data

And provides some great recommendations, including:

  • Never underestimate the importance of having a clear process vision, and well-designed and defined objectives, strategies, and plans for the process.
  • No matter how well the process is designed, it cannot be effective without the right people and structure.
  • It is essential that technology be leveraged.

I would highly recommend downloading a copy of the “Procurement Contract Risk Management” study and reviewing it at your leisure to make sure you understand what the contract risks are, what the key capabilities you will need to mitigate the risks are, and where the major problem areas are in most companies so that you can insure they are not in yours.

Supply Management Contract Writing, A Review Part II

When I reviewed Next Level Purchasing’s (NLP) (now the Certitrek NLPA) course offerings to date: Mastering Purchasing Fundamentals (Parts I and II), Savings Strategy Development (Parts I and II), and 14 Purchasing Best Practices (Parts I and II), I did so in two parts. In the first part, as I did in Part I, I presented an overview of the course, the key topics contained within, and a general discussion on why it is worth your time and money. In the second part, I dived into a few select topics, with kind permission, that serve to illustrate the quality and usefulness of the course to a procurement / purchasing professional. This post will continue the pattern.

In the first lesson, you are introduced to the six major purposes of a contract. These are:

Formalization of obligations and rights.
Written contracts formalize the parties rights and obligations in such a way that misunderstandings are minimized and legal remedies can be sought if required.
Control and allocation of risk.
A well-written contract will specify which party is responsible for all possible consequences and make sure that one party does not unfairly bear too much of the burden.
“Locking in” benefits.
A good contract will guarantee one or more benefits, such as performance, price, and/or warranty, for a long period of time.
Elimination of the need for further negotiation.
Negotiation takes time away from strategic activities that can reduce cost and increase performance – a contract locks in an agreement and minimizes the need for future negotiation.
Formalization of an agreement on exception handling.
Things inevitably go wrong. You can thank Murphy. However, documenting who is responsible and what corrective actions will be taken up front minimizes risk and loss as it allows for expedient and focussed resolutions.
To solidify an advantage.
Whenever you can identify a specific advantage that would not be realized in the conduction of business in the absence of a contract, you should formalize a contract.

In the third lesson, the course dives into three monetary remedies and three non-monetary remedies you can choose from in the construction of your performance clauses. Financially speaking, you could negotiate the right to withhold payment, cover damages, and liquidated damages. Alternatively, you could go a non-financial route and negotiate termination, specific performance, and injunctions.

Let’s dive into four of these briefly. Specific performance is a remedy that allows you to force a supplier to do exactly as the supplier promised to do. Injunction is a remedy that allows you to prevent the supplier from doing something. Chances are they would not appear in the same contract and serve complementary purchases. You’d use specific performance if you were buying a one-of-a-kind item, such as an original Van Gogh for your conference room (since you wouldn’t want a forgery) and you’d use injunction if a manufacturer was making a custom part to stop that supplier from making that part for anyone else (should that supplier stop doing business with you for any reason).

On the other hand, as you might have picked up from one of the other courses I reviewed, cover damages and liquidated damages are not the same thing. Cover damages refer to a calculated amount the seller has to pay for failure to deliver and occur when a buyer has to acquire the goods from another seller. They are generally calculated as the difference between what the buyer had to pay versus what the buyer would have paid if the supplier delivered. Liquidated damages refer to a fixed amount the seller has to pay for failure to honor an obligation, such as a fixed late fee for each day the seller is late. Whereas the premise behind cover damages is that the buyer loses money when the buyer has to obtain goods from a different seller, the premise behind liquidated damages is that the buyer suffers financial harm when the seller fails to deliver.

Finally, in lesson five on key commercial provisions, there is a very good discussion of the shipping clause, what needs to be addressed, and what questions you need to ask when writing this clause. If you are buying goods, this is one of the most critical clauses, since it determines when the risk transfers from the seller to you, the buyer, and who pays the various expected and unexpected shipping costs that can arise.

Shipping terms should address the method by which purchased goods are shipped, the carrier who will deliver (or at least which party has the right to choose the carrier), the party who bears the shipment costs, and the party who bears the risk of loss in transit.

That’s it for my review of “Supply Management Contract Writing”. So, assuming I have convinced you its worth your time, after acknowledging that neither Next Level Purchasing nor Sourcing Innovation practice law, that Next Level Purchasing and Sourcing Innovation are not rendering professional legal services with regards to this (online) class, that neither Next Level Purchasing nor Sourcing Innovation will be responsible for any contract, either in whole or in part, based on any material presented in the (online) class, whether used in whole or in part, go on over to Next Level Purchasing and find out more.

Supply Management Contract Writing, A Review Part I

Those of you following along will remember that I have reviewed three of Next Level Purchasing’s (NLP) (now the Certitrek NLPA) course offerings to date: Mastering Purchasing Fundamentals (Parts I and II), Savings Strategy Development (Parts I and II), and 14 Purchasing Best Practices (Parts I and II). This course, like the last three, is also worth the time and investment for any purchasing professional looking to advance her knowledge and career with a training program that can lead to a recognized industry certification (the “Senior Professional in Supply Management”).

According to NLP’s website, this course is designed to give you the skills necessary to minimize your procurement risks. Going way beyond the typical, dry explanations of contract law, through plain English examples and interactive exercises, this course is designed to teach you how to negotiate and write effective contracts and iron-clad terms and conditions.

The course promises that you will learn how to protect your organization from the disastrous effects of suppliers’ failure to perform, plus

  • How to decide if you need the protection of a contract
  • How to choose the most appropriate form of agreement
  • How to structure contracts
  • How to select, use, and develop language for methods of dispute resolution
  • How to write a contract’s key legal provisions such as indemnities and limits of liability
  • How to write a contract’s key commercial provisions such as pricing and delivery
  • How to write a contract’s key technical provisions such as specifications and warranties
  • How to make use of effective styles of contract writing
  • How to effectively proofread and organize contract revisions

… but it delivers much, much more! It also includes:

  • The primary purposes of a contract. (There are more than one!)
  • The differences between the ten most common forms of agreement.
  • Six different remedies that you can consider when writing a contract that covers what will happen if your supplier fails to perform.
  • A discussion of four different dispute resolution methods.
  • Common legal terms such as “force majeure”, “most favored nations”, and “choice of law” which have a distinct legal meaning despite the fact that they are typically not translated into English.
  • Stylistic guidelines that not only make your contracts easier to read, but reduce the number of objections your legal counsel will invariably have.

And even if you don’t write your purchasing organization’s contracts, the course is still worth much more than it costs – after all, if you don’t fully understand the language that lawyers love to use, how can you be sure that they are accurately capturing your agreements and intent?

So, after acknowledging that neither Next Level Purchasing nor Sourcing Innovation practice law, that Next Level Purchasing and Sourcing Innovation are not rendering professional legal services with regards to this (online) class, that neither Next Level Purchasing nor Sourcing Innovation will be responsible for any contract, either in whole or in part, based on any material presented in the (online) class, whether used in whole or in part, go on over to Next Level Purchasing and find out more.