How effectively your business can manage contracts is a significant to your organization's overall success. According to research from the International Association of Contract and Commercial Management (IACCM), improving contract management can improve corporate profitability by nearly 10 percent annually.
Where do so many contracts go wrong? While businesses can put their best foot forward by taking steps to draft well-defined contracts with clear deliverables and terms, many contract related losses and missed opportunities to improve value occur after a deal has been negotiated and signed. In other words, how a contract is implemented plays a direct role in its outcome.
According to the IACCM, contracts that are not managed diligently throughout their term risk leaking value. For example, the IACCM reports that 77 percent of companies lose value due to project delays and cost overruns, a risk that may be mitigated or avoided altogether through stronger contract management implementation.
Here are four tips to reduce risk and improve value from your contracts through successful contract management implementation.
1. Develop an Implementation Plan
As with everything else in life, you have a better chance of getting where you want to go with a plan and contracts are no different. Most business contracts involve a highly-specific set of deliverables and terms meant to guide them. But without a plan for bringing the contract to fruition, it can be easy to lose track of the details, running the risk that you won’t get precisely what you negotiated or that things can run astray in some way.
Once a contract has been successfully negotiated, it’s crucial to take some time to develop an implementation plan. This includes identifying everything your business is responsible for delivering to make the contract successful, as well as having a detailed understanding of the other party’s responsibilities so that you can plan to ensure they too are on track. But it’s not enough to simply know what needs to happen during the contract term – it’s also important to use those milestones to inform a formal, clear and actionable implementation plan that includes:
Scope and deliverables
Detailed project timelines
Clear roles and responsibilities for all individuals involved in implementation
2. Have a Formal Handover Process
One of the reason gaps tend to form between a contract’s intended purpose, and its actual implementation is that the people responsible for implementing are typically not the same as the teams who were involved in negotiating it. As such, having a process in place to ensure a thorough and smooth handover is paramount to successful contract implementation. A seamless handover is based on a strong implementation plan, but it also requires a clear transfer of the knowledge and requirements your plan contains.
Scheduling a meeting with all involved parties to walk through the plan and everyone’s roles and responsibilities is a good first step. But a strong handover involves not only the knowledge required to implement but also the tools. For starters, parties involved in implementation should have fast and easy access to all contract related documents, so that they can refer back to the agreement whenever needed. Second, as much as possible, individual should take steps to automate tasks associated with the contract management process, for example, setting up auto-reminders and notifications for key tasks and milestones to reduce the burden of ongoing monitoring and to lessen the risk that anything significant is missed during the contract term.
3. Use a Dedicated Contract Management Software Solution
If all of the above sounds cumbersome, there are tools that can help. Many businesses use non-dedicated enterprise tools such as spreadsheets and even email to store their contracts. The problem is such platforms do not make it easy to manage the unique tasks associated with effective contract implementation (they often don’t even make it easy to find your contracts again once you’ve stored them away).
But from allowing you to create an organized library of contracts that can easily be searched and retrieved, and that enables secure access for authorized stakeholders, to tagging and automated reminders and status updates, dedicated contract management software eases many of the pain points of contract implementation. Contract management software shouldn’t be implemented on a case-by-case basis – to improve your business’s overall results from contract implementation; it’s essential to integrate a dedicated solution into your overall contract management strategy and process and to ensure that all individuals who will be involved are trained and ready to go.
4. Keep an Eye Out for Red Flags
Successful contract management implementation isn’t just about ensuring that things go right – it’s also about knowing what to look for when things start going wrong, so that small problems or potential problems can be caught and addressed early. Being able to spot these early indicators can spell the difference between being able to course correct and things going off the rails. What you’re looking for will depend on the nature of the contract itself – the key is to determine which metrics will be the best performance indicators at the outset, and then to ensure you regularly measure those indicators against expectations.