Getting smarter with contract management

The digitisation of documents is just the first step in mature information management, says Paul Wright, founder of Datafinity.

Johannesburg, 02 Oct 2017
Read time 5min 10sec
Paul Wright, founder, Datafinity.
Paul Wright, founder, Datafinity.

All businesses face the same challenge when it comes to documentation and managing information. It has to be securely stored, it has to be up to date, and it has to be easily accessible. Digitisation of documents takes care of some of that. But how about taking it to the next level?

Take contracts, for example. Contracts between the business and its suppliers, between the business and its customers, and even between the business and its staff. Can any business say with absolute confidence that it can trace any historic contract ever signed, or that the version on record is the most up-to-date version and compliant with the latest legislation?

About 60% to 80% of business transactions are governed by some sort of contract, yet how often do businesses go back and check the contract to see if it's being adhered to? Not often enough, according to Paul Wright, founder of Datafinity.

A signed agreement with a customer or vendor usually lays out the service level agreement and penalties for non-compliance and similar details, but whoever goes back and looks at what's in the contract to ensure that service delivery is in line with what was agreed? "All too often, people can't be bothered to look for the relevant document, and many times simply can't find it," says Wright. "We have not met a single company, as yet, who can confidently say and then show that their contracts and leases, for example, in HR or facilities management or elsewhere, are securely stored in a searchable repository that's up to date."

For instance, in the construction industry, a contract will include delivery commitments and penalties for missing deadlines, etc. This will need to be stored and managed to ensure the suppliers are adhering to the necessary guidelines and delivery dates in order to avoid huge financial losses. The contract becomes the go-to document that outlines success criteria for the project, and should guide all project activities.

"Then there's the issue of legal compliance: where there is a relevant authority, there are rules and guidelines to adhere to in terms of keeping contracts. The business must be able to produce contracts when called on to do so. This is particularly relevant for companies that have head offices based overseas. They have very strict compliance requirements and, when audited, their processes must be compliant."

Wright says: "Plain and simple contract management is pretty straightforward. Contracts tend to be fairly static and quite predictable. The next evolution in mature contract management makes the whole process that much smarter."

You can create simple rules like automatic contract renewal reminders, and automate a lot of processes such as in the event of the renewal or cancellation of a contract, who needs to be notified, when, and what needs to be done next, etc. If it's a B-BBEE certificate that's due for renewal, who needs to know about that? The reminders can be contract-specific and unique to each company's rules and regulations.

It's even possible to check which contracts are missing from a particular project, says Wright. "Exception reporting around managing contracts is vital, ensuring no documentation slips through the gaps. It's also possible to automate non-conformance reports if suppliers don't deliver on time or as contracted. All of this is facilitated by linking your contract management solution to other business systems, enabling the sharing of information across several platforms."

Wright lists three steps to mature contract management:

1. Digitise your contracts and related content into a secure repository.
2. Add logic around reminders when the contracts are up for renewal, with notifications to the right people or user groups.
3. Link the solution to your main financial system (such as Oracle or SAP) so they speak to each other.

He says: "A really mature system would have one place where all information comes together in one screen, providing a 360-degree view of everything related to the contract. So, for instance, you can see how much you spent with a supplier over a certain period and how many non-conformance reports there are for that specific contract, while linking to the source documents in the same screen."

The ability to search the documents has also evolved. "Contracts are now fully text searchable on their content, so, for example, you could look for all of the lease agreements with the words 'penalty' and 'litigation' in them. The ability to mine contracts based on words contained in the document provides visibility into contract detail without physically having to read them. This presents a massive time and cost saving, particularly during audits.

Why is all of this useful? Wright explains: "If your business is sued for non-performance, you need to be able to source all of the relevant documents to prove what the contractual agreement says. A system that enables a business to store and trace its documents digitally can save millions of rands. Much like insurance, you may not think you really need a robust contract management solution, until the day something happens and you realise you should have had one, and the lack of a solution is now costing your organisation a lot of time and money."

The ability to manage contracts effectively is all about providing control, visibility, holding people accountable, ensuring compliance, passing audits, avoiding fines and providing an audit trail into who read which document, who made which changes, and who shared it with whom. And by so doing, eliminate a lot of financial risk to the business.