4 Common Pitfalls that can Derail Contract Management
As contract management teams know all too well, overseeing a large contract portfolio can be downright complicated. As the portfolio grows, it becomes increasingly important for the team to stay organized and committed to implementing its contract management strategy. Unfortunately, even the best laid plans can go awry, and there are certain pitfalls that are more prevalent than others. Here are four common pitfalls that can derail contract management and some tips to avoid them:
For most companies, there are different professionals responsible for sourcing deals, negotiating those deals, drafting the actual contract, and then overseeing the final contractual agreement. As a result, there has to be a seamless transition from one team to the next to ensure that important details do not fall through the cracks. Unfortunately, this does not always happen, as each team is often eager to hand the deal off once they have done their part and are beginning to work on the next transaction.
Although there are surely some time constraints precluding hours long sit-down sessions, failing to facilitate the transition effectively may end up requiring even more time down the line to get things back into order. Thus, there has to be some sort of transition memorandum and/or a brief meeting for the teams to convey the most critical aspects of the contract requirements.
Unclear Goals and Expectations
Once the contract management team takes over administration of the contract, the end goal may not be immediately clear. This may be due to the lack of transition just mentioned, but in many cases, it is actually due to a lack of clear goals and expectations for individual contracts, as well as the portfolio as a whole. The reality is that many companies simply view contracts as necessary annoyances with limited utility and significant risk. Because of this, the focus is often on merely fulfilling the specified obligations, without giving much thought to the long-term strategy.
A company has to view the contracting process and the contracts themselves as integral assets, come up with a coherent strategy for their implementation and oversight, and incorporate the goals and strategy into the overarching business plan. By doing this, contracts will not just be legally binding agreements outlining a list of tasks, but real assets that add value and contribute to the company’s growth and expansion.
Lack of Resources and Appropriate Technology
For smaller companies, it may be difficult to justify spending an inordinate amount of a tight budget on the contracting process. Even for larger firms, there simply may not be tons of money available for this particular operation, as insurance costs, supplies, and personnel expenses can be rather hefty. Obviously, a lack of resources, whether human capital or financial, can and likely will create some obstacles to effectively managing the contract portfolio. The only viable solution is to make the best of the situation at hand.
However, there is no reason that a company should avoid making an investment in technology to help with the process. These days, there are plenty of practical, affordable contract management solutions suitable for companies of all sizes and sectors. The key is to figure out what the company’s contracting needs are and then research the solutions that will meet those needs without draining the bank account. In general, investing in technology yields invaluable returns, so this is an investment that companies with heavy contract portfolios simply must be willing to make.
This obviously ties into the transition piece, but in this instance the problem is more about the communication within the contract management team. Of course, there may also be issues with how members of the contract management team communicate, or fail to communicate, with the company leaders and external vendors. Time and again, failing to communicate important information in a timely manner has allowed for small, festering issues to become huge, costly headaches.
But, overcoming this all too common pitfall is fairly simple. If a company promotes and exhibits transparency and encourages its employees to come clean, so to speak, without fear of repercussion, people are more likely to feel comfortable letting others know if and when there is a problem. At the end of the day, communication is most effective when there is mutual trust, respect, and understanding.
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