- Meron Hewis, President, Legal Talent Outsourcing
Managing commercial contracts is a complex activity for companies of all sizes and failing to have an organized and efficient process in place can have costly implications. Indeed, contracts are the lifeblood of business, so it’s critical to have sound contract lifecycle management practices in place to create value and mitigate risk.
For years, corporate legal departments have invested greatly in optimizing, streamlining, and automating their commercial contract management processes. Much of that effort, however, has been focused on the pre-award phase of contracts, involving drafting, negotiation, and execution.
That may be changing. According to a recent World Commerce & Contracting Association and Deloitte study, companies are shifting their focus to the post-award phase of contract management, which involves ensuring ongoing compliance with the terms and conditions, managing contract amendments, resolving claims and disputes, and measuring commercial performance, among other things.
The Trend Toward Post-Award Contract Management
The World Commerce & Contracting Association and Deloitte recently released a study called “When Technology Meets Humanity: The Future of Contract Management.” The study highlights the challenges that many companies face in managing their commercial contract portfolios.
“Among the many impacts of the COVID-19 pandemic, organizations discovered the frailty of their contract management systems and processes. As markets and supply chains were thrown into confusion, contracts proved difficult to find, hard to analyze and often provided little or no useful support in managing unfolding events. With customer and supplier data scattered across multiple applications, the absence of reliable contract lifecycle management systems exposed the fragmentation of critical business information. Commercial processes, especially those designed to ensure control and compliance, struggled to adapt and were in many cases by-passed.”
The study found that, in response to these challenges, companies are training their focus on the post-award contract phase to find more value.
“While the experiences of the pandemic are causing organizations to make improvements to their front-end capabilities, it is notable that post-award is receiving as much – and in some cases more – attention.”
Some of the study’s key findings include:
- Thirty-nine percent of companies are focused on improving post-award processes
- Thirty-four percent are working to introduce more robust approaches to obligation management
- Twenty-five percent are increasing the role of commercial professionals in post-award risk management
- Twenty percent are taking steps to automate and increase data exchange with trading partners
As the study explains, it’s no surprise that more companies are now taking steps to improve post-award processes.
“Less than 30% of organizations currently have centralized or center-led post-award contract management resources and only a little over 20% attempt to monitor or calculate the costs or overall benefits associated with contract management.”
Best Practices in Post-Award Contract Management
Just because a contract is signed, it doesn’t mean that the work of managing the contract has ended. In many ways, it’s just beginning.
The agreement must be easily accessible so that it can be monitored. The company must ensure that all aspects of performance—its own duties and those of its counterparty—are being met. Amendments may have to be made. Obligations may have to be enforced. Data should be extracted and managed to improve the performance of future agreements.
At Lexitas, our Commercial Contracts Outsourcing team has significant experience helping our clients design, implement and manage effective contract management systems that allow these and other actions to be taken across a large portfolio of agreements.
Some of the best practices involved in a post-award contract phase include:
- Tracking deadlines and renewals so that contracts can be renewed, renegotiated, or ended, as appropriate.
- Managing obligations in order to ensure deliverables are being met by key stakeholders and the value of the contract isn't deteriorating due to lack of oversight.
- Recognizing when revisions and amendments are required due to overlooked contract terms.
- Auditing and reporting that is conducted on a regular basis.
- Integrating technology to enable the streamlined management of post-award contracts.
The effective management of the post-award phase of contract management can also have a broad, significant impact on the pre-award phase as well. By tracking and auditing executed contracts, “management information” can be extracted that enables a company to generate more value from commercial contracts. For example, management information is what allows:
- In-house counsel to determine what types and quantities of commercial contracts are moving through their department.
- Contract submitters to easily access contract information and report up to management.
- Members of the C-suite to gain a holistic view as to the company’s contracting processes.
Without management information, corporate legal departments are flying blind. With it, they have greater flexibility to turn information into action.
In short, a structured pre-award process leads to a better post-award process, and vice versa. Better processes before and after contract execution lead to a virtuous cycle of more efficiency, effectiveness and greater value from commercial contracts.
If you would like more information on designing and implementing commercial contract systems for your business, please contact me.
About the Author: Meron Hewis is the President of the Legal Talent Outsourcing Division of Lexitas. Ms. Hewis has over 20 years of experience in legal consulting, project management, and alternative legal talent outsourcing solutions. She is a thought leader in the industry, providing unique legal solutions and designing the operations of various legal programs internationally.