Contract management is a core competency that provides businesses and organizations with the information they need to control revenue leakage, comply with applicable laws and regulations, and achieve other beneficial outcomes. That is, of course, if contract management is proactive and well-organized. Companies that learn to optimize their contract management reporting throughout the contract lifecycle stand to gain the most from their contract management practices.
Develop a Clear Contract Management Plan
Healthcare Finance reported that 60% to 80% of an organization’s transactions are governed by a contract. Contract agreements impact day-to-day activities within the organization, from the price of office supplies to efforts to control a challenging project timeline. Starting a contract with a clear plan to track its success can have a significant impact on daily operations.
At the outset of a contract, the National Association of State Procurement Officials (NASPO) recommends convening kick-off meetings and preparing a contract administration plan. This meeting should serve as an opportunity to clarify who will oversee the contract, which tasks a particular individual is responsible for, and any potential issues that may require close monitoring. Different departments should have a chance to voice concerns or priorities. Finally, there should be a clear understanding of who will conduct milestone reviews and communicate updates to other involved parties.
Identify Pain Points
Any given program within an organization has its strengths and weaknesses. A company seeking to optimize contract management reporting may hope to address a weakness of a prior system. Some common contract management problems include:
- Slow negotiation or payment cycle turnaround times
- Revenue leakage (missed rebates, off-contract spending, etc.)
- Compliance failures
- Additional, unexpected costs
- Delayed project timelines
Identifying the main issues your organization hopes to address can guide contract reporting processes. An organization concerned with timeliness might schedule a report for each new stage of the project, especially when materials are delivered to a different team. An organization hoping to optimize cost-saving measures might look for rebate submission opportunities or times when the contractor may need to order supplies and materials. Setting reminder alerts can keep leaders from missing important review dates.
In a large organization, it’s not uncommon for branches or even departments within a branch to operate independently. Even if various departments work with the same contract at certain points, there may not be many obvious opportunities for the legal department to reach out to the engineering team, for example. The risk is that departments may begin to behave as silos, using systems that don’t freely communicate with other information management systems.
Shareability and transparency are key. General counsel, financial officers, and project strategy leaders need ready access to materials. Working within a shared system streamlines access and communication. Approving updates and correcting problems goes faster when all decision-makers can easily communicate about the best way to proceed.
Use KPI Metrics to Track Contract Performance
The CFO of an organization may not spend much time directly managing contracts. This individual, or other top executives, may well be interested in understanding the ROI a new contract management system provides. Effective contract reporting collects data that top-level decision-makers can use to assess the value of contract relationships, and the contract management system itself.
In their Contract Administration Best Practices Guide, NASPO outlines key elements to quantifying contract performance. The first area to consider is the contract agreement. Defining and rating acceptable performance involves assigning key performance indicators and standards for:
- Contract goals
- Risk mitigation and information security
- Delivery terms
The contract management process also plays an important role in the success of a contract. Taking a “sign it and forget it” approach makes it all too easy to forget about cost-saving measures or miss potential risks until they become an active problem. Staying involved throughout the contract lifecycle positions both the contractor and organization for successful project completion. To assess contract progress effectively, NASPO recommends clarifying:
- Contract monitoring methods
- Reporting frequency
- Milestone and performance metrics
- Processes for dispute and claim resolution
- Contract closeout checklist
Having a clear process for how to conduct contract reports provides a template to continue to improve methods.
Accommodate Unexpected Developments
One of the most important benefits of effective contract management reporting is increased ability to identify necessary changes to a contract. In an ideal world, each contract would proceed smoothly and follow every line of the original agreement. In real life, companies aren’t always so lucky. Preferred brands or materials may run out of stock. Bureaucracy, unexpected regulations, or even the weather can cause unforeseen delays. Sometimes, an organization may wish to amend a contract due to an unexpected positive development, such as a newly available grant.
“Expect the unexpected” sounds like an impossible order to follow. Contract management reporting can’t predict the future, but it can help the organization prepare to respond effectively to unexpected circumstances. Thorough reports provide insight into why the contract requires amendment, and which parties may be subject to any consequences. Leaders should be able to track progress to date quickly so they are well informed to correct an issue. If the organization included contract amendment processes when drafting the contract, they can use these as a guide to approve needed updates as promptly as possible.
Taking a broader perspective to contract management than its administrative usefulness can reveal new potential for reliable reports to improve the organization’s operation. Contract management reporting that ties in performance metrics and a top-level assessment of contract management methods can be a valuable strategic business tool.