We may not realize it, but contracts help drive and shape every business. Gartner estimates that between 60% – 80% of all business transactions are governed by contracts or agreements in one form or another. So, whether we are aware of it or not, contractual agreements are an important part of organization’s underpinning structure.
Contracts provide the framework for how we work with people and other organizations, they provide the rules and guidelines for obligations so that everyone clearly understands what is expected of them. When managed properly, contracts can even help organizations to reduce costs and improve profitability, as well as mitigate risk.
So if contract management is so important, why hasn’t everyone been doing it for years? The problem is that traditionally, most contracts are created by individuals or departments, with no central ownership or control. Once created, contracts are stored in multiple locations and formats – electronic and paper-based- making them hard to centralize and find again. Does this matter? Yes, because you can’t manage the contracts you don’t see.
This lack of control over contracts across the organization can lead to problems and missed opportunities. For example automatic contract renewals can mean being tied to unwanted contracts; lack of foresight can mean the chance to re-negotiate better terms are missed, not to mention expensive litigation fees.
Get All Your Contracts in One Place
We see many organizations go through the same process because, in hindsight, keeping track of contracts seems like a simple task to manage manually.
All we need to do is store them in a standard file share, properly label all contracts and their corresponding versions, templates and clauses and we should never have a problem with finding a contract again.
Overtime, this manual approach falls apart.
We forgot to tell the new members of the team about our contract management processes.
I was so busy with the changes to the contract – I forgot to store the final version in the right location.
How can I find a contract that was written 3 years ago?
It is not hard to imagine how these challenges would quickly multiply in large or midsize organizations, with thousands of contracts spread out across major divisions or geographic regions. Research shows that around 80% of companies admit to not having full knowledge of all their open and legacy contracts.
Contrary to the famous saying, “what you don’t know can’t hurt you”, this approach to contract management leads to undetected problems, hidden costs, and liabilities which can remain unobserved within an organization for years. These time bombs can have a major impact on profitability; by increasing cost through inefficiency and leaving the organization open to unsuspected disputes or litigation.
Resolving the issues of contract visibility and risk management with fragmented manual processes is a recipe for failure. With a manual process there are no checks and balances to ensure that processes are followed and eventually lead to missing contracts. Contracts get stored on people’s hard drives and various versions may be found; with no information to know which one is current. Let’s not forget that there is no real search functionality with a standard file share. The file system only allows you to find contracts by file name. So if naming conventions are not outlined from the beginning, and carefully followed, you may be in some trouble when you are looking for a contract three years down the road.
Getting it Right
Contracts today typically don’t reside in a central contract repository and are not accessed via formal retrieval procedures. More likely, they reside in multiple locations, in both digital and hard copy, often outside the companies’ physical boundaries. A contract management software ensures you have the right process in place for contract creation going forward and allows you to import your legacy contracts to get a complete and manageable view of all your contracts. Along with new and legacy contracts, all supporting documentation such as PDFs, Microsoft Word documents, images and even emails can all be stored in the contract repository. Smartly stored and tagged with extensive metadata, contracts and their supporting documents are always easily accessible.
Arguably the most important feature, a contract repository is searchable, and not just by document name (like the file system) but by content. Search for your contracts by specific details or easily find contracts that meet certain criteria. A contract repository also allows you to create and report on metadata so you can report on contracts of interest, such as all the agreements that expire this year or contracts that are of a certain value or more.
Understanding your contract landscape and getting all your contracts in one place is the first step to improving the level of visibility and control over contracted commitments. Check back next week for my next blog where I will discuss automating the contract creation and approval process and how to effectively manage contractual obligations.
To learn more download our whitepaper Why Contract Lifecycle Management Should Be a Strategic Imperative for Your Business or visit our website to read about the features of Dolphin Contract Manager and how it can help you regain control of your contracts.