If one of the main goals of procurement is achieving the best possible ROI from company vendors and suppliers, then contracts - the binding guidebooks for these relationships - are vital tools for achieving these objectives.
From identifying what goods and services are to be delivered and under what terms, to preemptively identifying issues that may arise during the contract lifecycle, contracts are a roadmap for all procurement agreements. Having a clearly defined contract management plan in place can help to ensure the procurement process goes smoothly, from planning through to contract execution. While the nature of goods or services within procurement contracts may vary, some common issues tend to arise.
Here are the 4 biggest procurement contract management problems and the solution for each.
1. Disconnects between procurement teams and contract stakeholders
In larger enterprises, the teams responsible for procurement are typically not the same individuals who will be using the contracted goods and services. But a failure to properly engage stakeholders can result in contracts that don’t deliver on what is actually needed. One key challenge that prevents coordination and communication is a lack of visibility into the contracting process – it’s not uncommon for those who will benefit from a contract to be excluded from the process until after an agreement has been reached. Geographically-dispersed teams and remote workforces can make getting advance alignment a challenge. Additionally, the use of some online collaboration tools not explicitly dedicated to the task can result in multiple versions of the same agreement or changes overwritten as various people weigh in. Dedicated contract management software can ease these issues, allowing secure access to contract drafts for stakeholders on an as-needed basis, while audit trail reporting records all changes made within contracts so that nothing gets lost.
2. Lack of tools for evaluating whether a deal is a favorable one
Context is everything, but never more so than in procurement contract negotiations. What looks like a good deal under one set of circumstances, may not hold under another: purchasing from a supplier in a foreign market when the dollar is comparatively strong, for example, only to have the dollar drop, destroying your gains and negatively impacting the deal. Fortunately, similar past contracts can reveal some important clues as to how the value of your contract might net out.
Conducting such analysis, however, may bring its own challenges if it’s too hard to access the information you need. While many organizations can’t even begin to find their old contracts, a better procurement can access historical agreements, the more easily they can search out terms that have been linked to strong ROI, and conduct comparative evaluations between proposed and archived agreements. As such, ensuring that contracts are stored in an organized and easily-searchable format is key to identifying both macro trends that exist across types of agreements, and micro trends, which are historical patterns, such as over-provisioning, related to specific goods and services. Including post-mortem analysis as part of your standard contract management process can help to set benchmarks and ensure you aren’t scrambling to uncover useful information when you need it.
3. Prolonged contract negotiations
When the pre-contracting period drags on too long, it ties up procurement resources that could be better spent working on the next agreement. Protracted negotiations can also increase the risk that a deal will fall through and you’ll have to seek out and start from scratch with another vendor – going without essential goods and services in the interim. Enabling online access to both internal and external stakeholders can keep things moving as it allows parties on both sides of the agreement to instantly read and respond to changes, rather than sending paper drafts back and forth. Once an agreement is reached, you can speed up execution by using e-signatures, which allow you to instantly, securely and legally seal the deal.
4. Post-award contracting
Procurement teams spend a lot of time envisioning and negotiating the “what-ifs” – specifically, what if conditions, terms and milestones within the contract aren’t met. If no one is monitoring and enforcing contract terms, then the best case scenario may be that all of the time spent negotiating conditions could have spent more effectively; the worst case is that the contract will not deliver its expected value, with consequences ranging from superficial to catastrophic. But while procurement teams are likely well aware of the specifics within contracts, those they hand agreements off to may not be fully apprised of the details.
This is why a handover meeting and contract performance monitoring plan are so important. Contract managers should ensure that as agreements shift to the post-award phase, those responsible for implementation are fully brought up to speed on all of the contractual obligations. But knowledge alone is not enough – once all of the contract milestones have been identified, there should also be a plan in place for ensuring everything is delivered when and as it should be. Automated notification and reporting tools can help in this respect, as procurement teams can set up reminders about key dates and milestones rather than having to remind stakeholders long after the contract has shifted off their plate.