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Towards better contract management

January 7, 2014

Yesterday I challenged the contracts and legal community to ask whether they are truly doing a good job. From the responses I received, I know that some are quick to recognize that we need to do more, that we are performing a good tactical job. but we are not using the overall process to develop strategic insights.

There are many questions that I could pose to illustrate this point, but I assembled several as examples. If we are really able to claim we are providing a high value service to the business, then these are the sorts of questions to which we must have answers. And of course, it is not just having answers that matters, it is interpreting those answers to advocate change and improvement. Ultimately, contracts drive business value. Are you confident that you are extracting all possible value from them?

Here are a few questions. I’d love to hear whether your business can answer them:

What percentage of your contracts deliver the expected financial results? What percentage over-perform and what percentage under-perform?

What are the reasons for over or under-performance and in what ways were these results impacted by contracting policies, processes or skills?

What are the most frequent causes of claims and disputes related to your contracts and what steps should be taken to reduce them?

What criteria would you use to determine whether a specific contract should focus more on dealing with risk consequence or with reducing risk probability?

How do your contract terms and contracting processes compare with those of your competitors? What have you done / could you do that would represent a source of competitive advantage?

How do your contracts and contracting processes contribute to the strategic goals and priorities of the business? As those goals or priorities change, what is the process through which contracts and their terms are updated?

From a contracting / commercial perspective, what is the relative riskiness of different customers / suppliers? What is the contract risk profile for different segments of the business (for example, industries, product or service divisions, countries)?

How frequently is contract data analysis used to inform business management about the potential benefits of changes to commercial policies or contracting capabilities? Or do you only meet with senior management when there is an escalation or something has gone badly wrong?

  1. This is a useful list of questions. Any one of which should be very thought provoking for business leaders.

  2. When important contracts are centralized in this software, the resources of the business will be fully used to fulfil obligations. With such services, owners will be updated with payment schedules and necessary deadlines. Administrative costs are also saved because employees will be reminded to handle payment schedules, change of orders and reports.

    it contract management

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