Is the definition of a contract lifecycle in the eye of the beholder?
We’re all familiar with the concept of contract lifecycle management (CLM). An expansion of the traditional ‘e-filing cabinet’ model, true CLM must accommodate the negotiation of terms and conditions, authoring, redlining, and signature. Many people and organizations go ‘hands on’ during the lifetime of any given contract, but their interests and objectives vary. Procurement negotiates pricing and terms, legal solidifies and validates details, and business owners ensure that no one loses sight of the operational implications of wording and clauses.
While there is some overlap from a timing perspective, not all groups are equally involved at all times during the contract lifecycle. From legal’s perspective, the signature is the end of the active contract lifecycle unless there is the need for an amendment or the supplier violates the terms and conditions. Barring such circumstantial changes, their engagement with the contract, the supplier, and most importantly, the system that it is stored in, goes dormant at that point until the contract is up for renewal and/or renegotiation.
Although it would be easy to assert that legal disengages before the majority of the contract value has yet to be realized, procurement historically didn’t make it nearly as far as legal does today. Procurement would play an active role in the negotiation, a peripheral role in authoring and redlining, and a distant role in the final signature. They would then remain hands off until renegotiation. Today, however, procurement often stays involved long after contract signatures are dry to facilitate the supplier relationship and manage variations in demand or value-oriented objectives.
Defining the software requiments for each phase of the lifecycle
Like the phases in any corporate lifecycle, accommodating varying stakeholder interests is not just about the duration of their access to contracts. The software functionality that makes it secure and efficient enough for legal to redline and sign has little to no overlap with what procurement requires to manage purchasing compliance and utilization.
The software environments that sequester legal’s contract requirements from those of procurement do so artificially – partly because in the past each was a distinct user group for a different kind of solution. When companies realized that there was value in both groups having their needs met by a single solution, the inclination was to paste their interests together into a linear progression, awkwardly described as a lifecycle.
It would seem that there is a trade off to be made between having a CLM tool that allows legal to author, store and retrieve contract documents and having those contracts - or part of them at least - accessible in a more integrated way so procurement can work with them on a daily basis. Fortunately, even though the objectives and functionality requirements of legal and procurement don’t always overlap, they don’t conflict either.
The reality of the situation – one that today’s leading software platforms are racing to accommodate – is that the distinct contract-related interests of legal, procurement, and the business overlap and intertwine. Any solution that hopes to meet the needs of all three groups must do so from the foundation up rather than through the integration of disparate solutions.
Why focus on the contract lifecycle if you're not prepared to let it 'live'?
Procurement teams work hard to negotiate contract terms, but after signature the contract is often locked away in a legal database, removed from the purchasing activity it is supposed to guide. On the other hand, allowing contracts to live in procurement software ensures that negotiations, contracts, savings plans, purchasing activity, and supplier performance against established KPIs are all connected at the source. Measuring utilization and compliance becomes natural, integrated, and aligned.
But perhaps legal doesn’t want to manage contracts in a procurement-owned system. In most cases, they will accept a procurement system for contract storage but stop short of embracing cloud-based authoring. Since most procurement software is hosted in the cloud, legal needs a solution that will bring the contract ‘down to earth’ for authoring and send it back up to the cloud afterwards. A well-integrated Microsoft Word plugin lets legal work in Word without the contract owner and/or procurement being blocked from seeing it and connecting with it in the larger cloud environment later in the lifecycle.
The key to holistically managing a contract through its full lifecycle is not just protecting its existence, but facilitating what it was designed to DO. It must be possible to:
- Check actual invoice prices and service delivery against the contract.
- Validate that all instances of contracted goods and services coming into the enterprise are from the right supplier(s) and under the right terms.
Satisfying the above requirements goes beyond any legal-oriented storage and redlining solution. Attempting to manually manage compliance and utilization is not an option either, making the best option a procurement based CLM solution that accommodates the functionality required by legal without sacrifice on their part. After all, it is neither procurement nor legal that makes the final determination of contract results. That distinction belongs to finance.
Automating authoring, storage, compliance, utilization, and reporting in one centralized platform makes full contract lifecycle management a compelling - and achievable – goal for the entire enterprise.
The success of any technology depends on how easy it is to implement and use. A software with powerful, comprehensive functionality but complex and difficult to use can rarely drive the expected efficiency and business results. Smart by GEP is pioneering example of what the user experience in the latest generation of procurement software can be.
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