Contract management emerges

By Vicky Burger for Realyst

Johannesburg, 16 Jan 2008

Most business relationships are based on a contractual agreement that provides a framework by which a company manages and mitigates the risk in relationships, says Paul Maddison, MD of Realyst.

Realyst specialises in automated contract risk management and is a provider of lease and contract management (CM) software and consulting services.

Maddison says contracts underpin what an organisation does, its procedures and processes as well as defining how it manages its risks, records and obligations. Despite this, most companies don't have an effective contract management system. Generally, the paper copy is filed and the details are stored on decentralised spreadsheets or databases, Maddison says.

"This makes it difficult to share and manage the contracts. And, in addition to a lack of processes, visibility and control, it exposes the organisation to breaches in corporate governance requirements and financial loss."

Enter CM

CM software automates the manual contract process, explains Maddison. It enables companies to maximise business benefits from contractual relationships, and to mitigate the risks associated with contract management. It covers the entire life cycle of the contract, from initial authoring and negotiation, contract storage and retrieval, to compliance and reporting.

CM's main objectives are to optimise processes, act as a central repository (that is in a digital format and easily accessible and visible) and standardise how contracts are authored and what the approval processes are. These objectives directly translate into tangible benefits and return on investment, Maddison says.

"An improvement in administrative process leads to reduced administration costs; improved accuracy of invoicing and debt collection means an increase in revenue. Implementation of improved checks and balances reduces maverick spending and improves corporate governance and compliance."

All information goes into one central database and can be used to spot and report on trends as well as highlighting issues such as an overlap or conflict of contracts. This allows for improved management of multiple contracts and for in-built checks and balances, he explains.

"The dashboards are custom-made to fit an organisation's needs in terms of look, feel and information. It shows and reports only on information pertinent and relevant to that organisation's particular needs at a particular time. In addition, it reports on information across the entire base and has in-built tasks, alerts and key tasks."

Adoption rates

CM is a relatively young industry, states Maddison. The US is at the forefront of the industry, followed by Europe and then SA, which is about 18 months behind.

The industry saw a slow initial adoption rate, mostly as a result of a lack of knowledge and education about CM and what benefits it offers organisations, he says. Recently, however, the adoption rate has been increasing, especially within financial institutions.

Driving adoption

Maddison says there are three main drivers for the adoption of CM.

Firstly, corporate governance legislation has probably been the main driver. Financial and regulatory requirements have increased the urgency for enterprises to access, monitor, and control contract creation and performance.

In addition, the increasing complexity of contracts is also playing a role. New business models, market pressures and globalisation have dramatically increased the volume and complexity of corporate contracts, states Maddison.

Enterprises must now negotiate and manage contracts to support a myriad trading regulations and regional business practices. Outsourcing, licensing, channel and warranty agreements are also growing both in number and complexity.

Finally, companies are constantly seeking ways to improve profitability and gain a competitive advantage, Maddison concludes.