7 Best Practices for Procurement Contract Management
Contract management is an essential part of the procurement process (aka buy-side contracting). Better managing your contracts can streamline the process, reduce errors, mitigate risk, increase compliance, and result in better-negotiated deals.
Procurement contract management is more involved than just keeping a sharper eye on the contracts you already executed. The contract management begins well before negotiations start and ends long after the contract is signed. However, following a handful of best practices can result in a significant impact throughout your entire organization.
Key Takeaways
- Poor procurement contract management can result in missed deadlines, unsuitable products received, regulatory noncompliance, and lost profits — all resulting in risk
- Best practices for procurement contract management include assigning clear responsibilities, standardizing contract terms, centralizing all contracts, and automating business processes
- The best way to ensure these best practices is to embrace automated and data-driven contract lifecycle management software
Common Problems in Procurement Contract Management
Several issues can arise from the contracts your procurement department signs. If your staff doesn’t do it right, you can run into financial, fulfillment, and even compliance and legal problems.
What problems can be caused by poor procurement contract management? Some of the more significant issues include:
- Duplicative contracts from different parts of your company
- Insufficient monitoring of the other party’s obligations
- Missing your contractual deadlines such as a renewal termination
- Not receiving a product on time
- Receiving unsuitable product due to poorly specified contract terms
- Noncompliance with industry regulations
- Risk of litigation with the other party
All of these items can end up costing your company money. Research shows that poor contract management can cost companies up to 9% of their annual revenue – which is why you need to adopt best practices for procurement product management.
Best Practices for Managing Procurement Contracts
Several best practices can reduce the inherent risk found in all procurement contracts. Following these best practices will help modernize your procurement process.
1. Assign Clear Roles and Responsibilities
Since procurement contracts touch multiple departments and individuals within your organization, everyone involved must know their roles and responsibilities.
If contract-related duties are not clear, you may end up with some departments dropping the ball, others unnecessarily slowing down the process, and massive inefficiency throughout your entire organization.
It’s common for multiple departments to think that they play a central role in the contract process. This is exemplified by the responses to a survey by EY Law, in which 59% of legal departments said they were the contract lead, 56% of contracting departments said they were the lead, and 39% of business development departments said they were the lead.
An organization can’t have three lead departments for every contract, leading to turf wars, confusion, and inefficiency.
2. Standardize Your Contract Terms
One of the most important things you can do to improve the procurement contract management process is standardizing the contracts you create. You don’t want to reinvent the wheel with each new contract. Whoever initiates a new contract should have a library of approved terms, clauses, and language to choose from.
Not standardizing contract terms can result in rogue departments creating contracts that don’t meet your company’s established criteria and possibly not adhering to industry and legal regulations.
3. Centralize Your Contracts
All of your firm’s contracts need to remain stored in a central location and standardized format. This is most easily accomplished by digitizing existing paper contracts or creating new contracts in digital format.
Storing contracts digitally takes up less space than dealing with physical contracts and enhances security. Only authorized employees can gain access to the digital files. In addition, working with digital files enables easier searching, access, and analysis of the valuable data contained in each contract.
It also ensures you know where each contract is and what it contains, so contracts can’t be siloed and even hidden in individual departments or offices.
4. Closely Monitor All Obligations
Another benefit of centralizing your procurement contracts digitally is that it enables closer monitoring of all contractual obligations – yours and the other companies you contract with. It’s relatively easy to flag critical due dates and automatically receive the notification of pending deliverables. This eliminates the risk of your company missing payment or auto-renewal deadlines and helps you monitor – and helpfully reduce – late or missing deliverables from your suppliers.
5. Ensure Compliance
Just as it’s essential to monitor all contract schedules, it’s also important to ensure that all your contracts comply with appropriate internal, industry, and legal regulations.
Noncompliance can cost your organization in the form of fines, legal action, and loss of reputation, so you need to examine every contract to ensure proper compliance. Centralizing your contracts, so that rogue departments don’t write contracts that are missing these important sections can help you accomplish this.
Compliance is also easier when you start from a library of preapproved clauses and terms – or even complete contract templates – that include all necessary compliance-related language.
6. Conduct Regular Reviews
Any procurement contract process you put into place is a living thing. Your process needs to change over time to ensure that it is working at optimal efficiency and best meets your organization’s needs. It also needs to adapt to changes in your industry and within the procurement environment. This adaptability requires you to constantly review the process to ensure it is working as you intended. You need to know if minor glitches or major bottlenecks appear and adapt accordingly.
7. Automate Your Processes
Perhaps the most impactful way to improve your procurement contract process is to automate it – from start to finish. The deployment of contract lifecycle management (CLM) software, such as that offered by Contract Logix, can help with this.
A robust CLM platform automates the entire procurement contract lifecycle and provides the following benefits:
- Improved efficiency
- Shorter contract process time
- Fewer errors
- Fewer missed obligations
- Improved compliance
- Lower costs
- More actionable insights
Let Contract Logix Help Automate Your Procurement Contract Management Process
The best way to adopt these best practices is to turn to the contract management experts at Contract Logix. We have years of experience helping companies like yours automate the procurement contract management process and streamlining all aspects of the process. Our easy-to-use and data-driven CLM solutions will make your procurement process more efficient and more profitable. Contact us today to learn more.
Contact Contract Logix today to learn more about automating your procurement contract management process.