Are You Committing These 4 Contract Management Sins?
The field of contract management manages a delicate balance between cost reduction and compliance. While it’s true that as projects grow more complex, claims and disputes would also be on the rise; it’s also true that there are plenty of opportunities to redress the balance.
One of the key ways to resolve issues is to act proactively and promote a culture that aims to minimize future issues. Taking a cue from the idea of the seven deadly sins (also known as cardinal sins), here are four contract management sins that establish a useful framework on how to streamline contract management processes.
- Letting a Contract Get Into Trouble
Any contract manager should be able to answer the questions: ‘Where is the contract?” and “How are we doing on that contract?” The first question should take very little time as to allow the contract manager to get to work with the second one. If a contract is locked up physically in the cabinet back at headquarters or digitally in the hard drive of a colleague that is out of the office, the contract manager is at a disadvantage to act in an efficient and effective manner.
The second question shouldn’t require the contract manager to follow a massive web of interconnected spreadsheets. Even the most brilliant professionals are prone to make mistakes in manual processes involving spreadsheets as JP Morgan learned when it got fined $600 million. The truth is that Excel isn’t enough for contract management.
These two questions reveal the need for contract management software that is purpose-built to allow an employee to prevent a contract from getting into trouble. If she can’t take a look at the contract right away or have a snapshot of performance, how can she prevent a problem?
- Not Being Aware a Contract Is In Trouble
Of course, the second contract management sin is deeply connected with the first one. Unless a contract manager can have a clear picture of the lifecycle of all his accounts, he still can have the benefit of the doubt in that he “never saw it coming.”
However, the parties at the other end may not be so forgiving. For example, the U.S. government withheld a $195 million payment from Lockheed Martin because the enterprise failed to track costs and schedules for F-35 jet contracts. Instead of using a manual system, the proper use of a digital system would have allowed Lockheed Martin to avoid the delay in payment. A contract management system can raise concerns though automated emails when contract language falls outside a predetermined range or though a dashboard that tracks selected KPIs.
Investing in a contract management system is good idea not only for enterprises with clients in the private sector but also in the public sector. For example, the Department of Defense updated its contract guidelines to require contractors to use electronic systems in several processes, including contract management.
- Being Aware But Not Asking For Help
A report from Grant Thorton on government contracting indicated that 19% of surveyed companies rated their relationship with auditors as fair or poor, and 10% of surveyed companies rated their relationship with contracting officers as fair or poor. The common theme among complaints from both sides was there was no good communication between client and service provider.
Proper client management is key for client retention and sustainability of operations. Not all the best solutions for a problem may come from your side. By owning a client relationship and breaking bad news early, a contract manager may find that the client may propose a more suitable course of action or open an alternative one that the contract manager doesn’t have access to. Likewise, a contract manager should have access to senior staff for issues that require decision-making beyond his rank or expertise.
- Hiding The Fact That It’s Trouble
This is by far the worst of all four contract management sins. Not only may it damage a business relationship beyond repair, but also it may carry undesirable and costly legal consequences.
Still, it’s key that your enterprise takes steps to set the right stage to improve employee accountability:
- Shift from blame to accountability: Focus on measurable metrics and not on factors for which an employee has no control.
- Establish a decision framework: This is particularly useful for new employees or any employee facing a new challenge. Establish clear guidelines that people can refer back to so that they are able to take the right course of action as soon as possible.
- Provide context for CLM: Allow employees to have a clear picture of the contract lifecycle so that they understand how their actions affect the ones from others. Seeing the potential snowball effect of a “little problem” allows employees to understand the importance of breaking news early and asking for help when needed.
- Embrace CLM technology: With timestamp and author features, CLM software makes it easier to answer the who/what/when questions. The more transparent your contract management processes, the more accountable the people.
By using these four contract management sins as guidelines to model behavior in processes, your enterprise takes an important step towards streamlining its operations and minimizing claims and disputes from clients.