One of the most important aspects of contract management is ensuring that contract partners adhere to the negotiated terms of contracts—a reality that a member of the United Kingdom’s Parliament thinks is eluding that country’s Department of Work and Pensions. Last month, the chair of Parliament’s Public Accounts Committee, Margaret Hodge, sharply criticized the department’s contract management, following an investigation by the National Audit Office into the department’s contract with Altos Healthcare.
Hodge “said she was ‘stunned’ that the department did not ‘check and challenge’ the key performance data which supported its invoices,” reported publicservice.co.uk.
Hodge cited failures to manage and monitor contract performance, allowing for “exploitation” and “loopholes.” The National Audit Office’s report specifically called for new processes to help the department verify Altos invoices and Altos-supplied performance information.
The department’s problem is one that’s also faced by many commercial enterprises, which routinely allow permitted revenue to go unclaimed or invalid charges to go unchallenged. Fortunately for enterprises struggling to manage contracts more efficiently, the necessary processes—the new processes that the National Audit Office called for—can be supplied by contract management software.
Holding Contract Partners Accountable
Enterprise contract management improves visibility of supplier/vendor contracts to all relevant people in an organization, so that non-compliance with terms doesn’t go unnoticed or unheeded. The software will provide automatic alerts for milestone dates, negotiated discounts, rebate opportunities, available underperformance penalties, and other key ongoing contract information.
These automatic notifications help to streamline and strengthen contract performance monitoring, making it possible to achieve increased revenue realization and minimization of costs.
Conversely, a lack of automated contract management can result in lost revenue and higher-than-negotiated costs—a potential disaster for any enterprise, particularly SMBs operating on tight margins.
Integrating Contracting Processes
With paper-based contract management, contract monitoring and management are typically a disjointed “siloed” process, with the various involved departments—management, finance, legal, sales, marketing, IT, etc.—all operating without adequate cross-communication and without a united effort to maximize contract performance. In paper-based contract management, each vital piece of the contract management process is often virtually disconnected from the other pieces.
Contract management software, on the other hand, allows for each business unit with a stake in contract management to work from the same, always-up-to-date contract data, which is aggregated and stored centrally. Contract management software is also easily integrated with other enterprise technology, such as software for customer relationship management, enterprise resource planning, and legal analysis.
The benefits of this integration are evident throughout a contract life cycle, and performance monitoring is no exception. If a particular contract is not performing to negotiated expectations, each business unit that needs to take action will automatically be made aware of the problem and prompted to address it. For example, accounts payable can be alerted to withhold milestone service fee payments if a supplier has not met the on-time delivery requirements necessary to earn payment under the contract terms.
Ensuring contract compliance by counter parties is only one of the many benefits of enterprise contract management software, but it’s certainly a critical one. Essentially, this function of contract management is about eliminating waste—both the waste of unnecessary expense and lost revenue and the waste of internal resources on inefficient contract management processes. The reduction of this waste will more than justify the cost of implementing the software, while significantly improving an enterprise’s competitiveness.