How can you improve your contract management processes? If you can do this effectively, there are measurable benefits that are not difficult to realize – with just a simple review and a few changes.
Contract management is represented by the life cycle of a contract – from building the contract to managing it throughout the process. Contracts are “living” documents and need managing, updating, tracking, storing and maintaining. They have a life span and renewals have to be initiated where appropriate and within the right time and for the right amount.
Some challenges: Unknown number and value of contracts, under-utilized templates and too much customization, risk management, unclear roles and responsibilities, onerous processes to get signed, inadequate storage of contracts, unclear if commitments are met, risk of penalties or missed opportunities and sometimes contracts expire without anyone noticing. In aggregate these challenges are often difficult to deal with and manage.
Most of us don’t have the resources to have someone dedicated to managing not only the processes of the contracts, let alone dealing with vendors or suppliers. It seems to be obvious that you need to follow best practices so that you can avoid some of the pitfalls.
Think about how “mature” your organization is in terms of contract management. Is the management integrated into other elements of your planning, processes and technology? Is this done on an ad-hoc basis or is there a structure? Which part of your organization is responsible and accountable for ensuring that contracts meet and adhere to standards? Do you have clear policies and procedures that have been communicated to all staff?
Improvement in the process can actually improve the bottom line – total spending can be reduced, total revenue can be increased, you can be more compliant and at the same time, reduce risk. These benefits can be measured. Plus, you can have increased peace of mind.
Some of the tactics you can utilize to improve the process?
The first step is to conduct a formal assessment of the contract management process to see if there are any significant weaknesses that are exposed. Do this from a “start to finish” approach – even simple things like where contracts are filed can indicate improvements that need to be made. Do you have an organization wide repository where you keep your contracts?
Next, look at life cycle and forecast volumes, renewal times and see how this is working from a practical perspective. From the finance side, check for contracts that may be renewed at inappropriate times so that a department is able to spend the full amount of their budget. Check for “close” relationships between staff and the vendors. Is there adequate separation of duties and/or an independent review process in place?
Gain an understanding of the total volume of business you’re contracting with suppliers so you have a comprehensive view of the dollar amounts and complexity of contractual relationships.
Audit transactions associated with contracts to ensure that departments are compliant with what and what should not be included. Watch for departments that may be splitting invoices to try and avoid threshold levels where a contract should be in place. Another check on transactions – look for transactions where a department may be “side stepping” resources allocations by contracting out. One example might be where your IT department is charged with providing desktop training and a department has contracted out their desktop training to a third party vendor – where they didn’t have advance approval.
Work on standardizing clauses for all contracts. Aside – do this for other documents similar to contracts such as employment offer letters. Customization for contracts is often essential, but do your best to adhere to standard paragraphs and language. Develop good templates – “automation” can make contracts much easier to develop and can reduce the amount of work to create them. Standard templates can help to reduce your risk and liability. Ask your peer organizations if they have any samples of templates that you can use as a basis for your own.
Sometimes contracts have too much detail. Details can be good, but remember that every time a detail changes a contract may need to be re-written. Make sure that the level of details is appropriate for the task at hand. In many cases – I’ll refer again to employment offer letters – too much detail makes it harder to make changes down the road.
Look carefully at the “order of magnitude” of contracts. In some cases, is simply may not be necessary if the level of risk and obligation is at a level where it just doesn’t make sense. Set a threshold level for your managers – “over a certain level of services, we require a contract.” Always balance with liability and financial commitment. And within the threshold levels set the appropriate number of signing authorities. “Over $X, we require the signature of the President and the Chair of the Board.”
Contract negotiations can take a long time and be costly. I like to have legal services managed out of a central budget rather than departmental budgets. There should be a stringent approval process every time the organization needs legal services – see if the review can be done internally rather than engaging expensive legal help. If you’re a large organization, check with your central legal or finance office to see if they have any recommendations or internal expertise. As mentioned previously, if you have great templates, most of the development of initial drafts of contracts can be done by your departments and without needing legal.
If you have a lot of contracts, use some enabling technology to try and manage the processes. There is commercial software available, if you’re large enough. However, there are simpler solutions such as a simple list on a spreadsheet or utilizing document sharing or scanning software with some meta-data. Just make sure that you’re recording, scanning and describing consistently – and be organized so contracts can be found easily.
Simplification of contract management should be an overarching objective.
Many organizations don’t look at contract management in a systematic fashion – if you haven’t, include a review in your annual plan. It’s a project worth doing and everyone in the organization will benefit from the improvements you can make.
His management experience includes: technology and information systems, software conversions, gifts and records processing/management, prospect research, document imaging, web sites, online programs, finance, investments, working with senior management teams, strategic planning, boards and committees and other duties that help organizations manage their fundraising, constituent engagement and sustainability.
Brian’s current role of Senior Vice President for Finance and Information Systems at the VGH & UBC Hospital Foundation started in 2008.
Brian worked previously at the University of Michigan and was responsible for managing the technological infrastructure, gift processing and records administration for the Office of University Development. This was in support of a $3.1 billion campaign with annual fundraising revenues of $250-$370 million. The database contained over 1,000,000 entities and over 184,000 gift transactions were processed annually.
Prior to that, Brian worked at The University of Toronto. The University’s $1 billion plus campaign was Canada’s largest and most successful philanthropic effort in higher education. The database of over 700,000 entities supported a large-scale decentralized advancement operation.
Brian also worked at a number of other institutions and businesses in the United States and Canada, where he gained knowledge and perspectives of managing in small, medium and large shops. This experience included multiple system conversions, website development, budgetary and financial responsibilities, operations management and more.
He provides consulting services in Canada, the United States, Asia and Australia, has written many articles, is a published author and speaks at conferences and through webinars. He was a founding board member of the Association of Advancement Services Professionals and a founding committee member of the BC Blackbaud Users Group.