As companies grow, they accumulate more and more contracts. Eventually, contract owners start tracking important dates in a spreadsheet or Outlook so they don’t forget them. But this ad hoc way of managing contracts gradually becomes unwieldy, risky and costly. The question is, what is that point, and how do you know it’s time to consider a more purpose built solution?
I recently spoke to a Director of Contract Management from a major service provider and Layne Jeffries, Legal Counsel at Manitowoc to provide some guidance and advice.
Here are five signs that spreadsheets and Outlook no longer work and that the cost of a purpose-built contract management system justified by risk avoidance or staff time savings:
Multiple People are Involved in Contract Work
There are a variety of ways that the institutional history of a contract can be lost, which creates risk. If any of the following apply to your business, it’s a sign you should consider a contract management solution:
- No reliable central repository where all company contracts reside.
- Multiple business locations with separate contract locations.
- The contract owner leaves the company, leaving incomplete information behind.
Cost of Time Spent Locating and Refiling Contracts is More than $300-$400/Month
If staff has to spend significant time looking for contracts, not having a formal contract management system is costing you money. This adds up quickly. Just a couple of hours wasted could pay for a professional solution.
-If #hours x $/hr of staff > than $300-$400/month
-If legal team spends > 2 hrs/month locating contracts
Cost of Unintentional IT Maintenance Renewals is More Than $400 a Month
IT audits frequently find that companies pay large amounts in maintenance and contract renewals that are not needed. If you have ever paid for hardware or software maintenance that you no longer use, this is a sign you need a contract management system. A director of contract management for a major service provider noted that, “It’s not uncommon for IT to stop using a software or hardware solution but continue paying for maintenance. Usually, a contract management solution more than pays for itself by alerting all parties about the renewal of a maintenance agreement that should be canceled.”
Same Vendor Has Contracts With Multiple Departments: Missed Cost Reduction
A centralized contract management solution identifies multiple contracts your company may have with a vendor. “I found one vendor that had 7 or 8 separate contracts with us. By consolidating the contracts, I was able to save the company 30% on a volume discount,” explains the Director of Contract Management for a large service company.
Compliance Risk and Financial Penalties
Many companies operate in regulated environments where violations carry significant financial penalties. If your business is in a regulated market, getting a contract management system in place early is crucial. “Without being able to manage contractual compliance, companies face significant risk in terms of financial penalties, and even criminal changes. Companies cannot fully identify where, or even what laws and regulations exist within their contracts, unless they have implemented some form of a contract management solution.” says Layne Jefferies, Contract Manager, Manitowoc.
In addition to compliance, protecting and maintaining intellectual property ownership can also prove hard to manage. Consultants used by a company typically sign agreements that confer IP ownership to the company during that time, but tracking and ensuring that all working consultants and advisors have up to date agreements gets harder as a company grows, and opens the door to company risk regarding who owns the work.
Spreadsheets can work well when a company is small and there are only a few contracts to manage and not very many people signing contracts. But as a company grows, so does the number of people executing contracts and the storage locations for those contracts. Although building a custom solution or buying contract management software can take significant IT time, cost money, or both, the cost of not having a contract management solution in place may be much higher.