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Contract Discovery As A Proactive Discipline

November 22, 2011

Contract discovery is not just something you should do when things have gone wrong; it is also (perhaps even more) something that should be done to avoid problems and bring added value to the business.

Most organizations have hundreds, perhaps thousands, of contracts. As Seal Software points out in a recent blog, these are often “spread across countries, divisions and departments. It’s not hard to imagine the scale of the challenge in pulling together the relevant contract information that proactive business planning requires.”

What is meant by proactive business planning? Seal poses three questions as an example:

Can you answer the following questions?

  • Do you have visibility of all contracted costs?
  • Which customers have the right to terminate their contracts this year?
  • Which supplier contracts are due for renewal; can you terminate or re-negotiate?

These are just some of the questions we should be asking (and highlighting to management). As we know, the need for research into terms often goes deeper. For instance, many companies have times when they must discover assignment rights, or what happens when there is a merger or acquisition, or what variations there may be between contracts with respect to data protection duties or disaster recovery. A recent example related to in-depth understanding of what constituted ‘a default’ and the generic right of customers to terminate. Another was around the valid causes of force majeure.

For many organizations, budgets are tight and the pressure on resources is at unprecedented levels. That means it is an ideal time to push for the automation that we all need. Many may be shocked by this statement – if reources are tight, surely this is a really bad time to look for funding?

I suggest you refer to the findings of a study that IACCM recently undertook on the impacts of current market conditions.  This featured in a webinar that was undertaken with Emptoris last week and revealed the following as key priorities for business:

FOR BUYERS – cutting costs, increasing innovation, making decisions faster.

FOR SELLERS – closing new business, cutting costs, being more competitive.

The analysis led to the following conclusion: “When it comes to cutting costs, internal efficiencies are high on the agenda for all contracts groups. For buyers, ensuring contract pricing agreements are met and consolidating the supply chain and distribution / logistics are also priorities.”

Contracts groups will not be able to achieve any of these business goals with less resources. Instead, they must emphasize how much more they could deliver if they were equipped with the right insights – in fact, with the ability to perform effective ‘contract discovery’.

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