Contract Lifecycle Management: Post-signature is more than obligation management has been saved
Contract Lifecycle Management: Post-signature is more than obligation management
Knowing what the contract says is just the start to finding value
Just a few weeks ago, I wrote about how post-signature support is where the real value is lost or gained in contract and commercial management. I then helped publish a joint Deloitte-World Commerce & Contracting paper where post-signature was featured. Needless to say, this topic has been on my mind a lot lately and has been the premise for a multitude of conversations.
One FAQ that I want to address is: Post-signature support … isn’t that just obligation management and document retention?” I am obviously biased here. I have spent the better part of two decades talking about contract and commercial management, so this response is like when some says, “The Godfather--that’s a movie from the 1970s, right?” “Bruce Springsteen-- he’s just a singer from the (great) state of New Jersey right?” “Beyonce--she was in Destiny’s Child, right?” In a way, these comments are not wrong per se, but they don’t really appreciate what’s at play here or the overall impact. I am all in favour of simplifying things, but I think post-signature contract & commercial management – because of their complexity-- are falling into a bad version of reductionism. Consequently, I’d like to spend some time explaining why there is more to this area than just monitoring a few obligations. Why “Thunder Road” or “Irreplaceable” are perfect songs will have to wait for a different conversation.
Given the aforementioned, let’s walk up the value ladder and try to detail what we mean when we say “post-signature” support. I’ll use maturity model type language to help frame this.
Basic: Obligation management & document retention
Most companies’ contracts are already written and in execution phase, which means most of their revenue and costs are already written down. Given that, just knowing where these contracts are and what they say, seems like the most basic of basic things. However – despite the current wave of CLM technology investment and market expansion – many companies that I talk to still have pockets (if not holistic gaps) here. These days, companies are getting better about knowing where the contracts are or at least their general area, but many still have a weak version of obligation management. This is not just what the four corners of the document say but also the regulatory implications of the contract. If you need evidence of this, just look at what happens when anything changes. Within the last 18 months alone a slew of activity around IBOR, Brexit, pandemic effects on supply chain, new data privacy laws, etc. have had a massive impact on contract regulation. This has been accelerating over the last few years and many companies are still going through tactical “fixes” as opposed to strategic cures here.
These examples are just the existential regulatory changes that are (sometimes) foreseeable/planned. If you look at the obligations within a contract that a company has to its partner or a supplier has to its customer, they are very tricky and rife with potential penalties and opportunities. And yet – many companies just do the most basic (if anything) monitoring, which may be limited to simply tracking the parties and the end dates. Quick, free advice here– if you are only tracking the end date, but not the notice period to terminate or stop an auto-renewal, I would guess that you accidentally renewed something you didn’t need and paid cash for something that was never used. And whatever you’ve purchased is likely a bit more expensive than that piece of exercise equipment that you have turned into a coat rack.
Intermediate: Change orders, SOWs and extensions
Your procurement and/or legal teams have probably established limits which trigger review, tender or other scrutiny. Your teams probably know this for the most part, but do you know who knows this better than anyone? Your key vendors. This is not driven by trickery or malice, but just the expeditious needs of the business. However, in certain hands and with the right focus and understanding of industrialization and technology, some companies may be tempted to become “change order” machines. Don’t get me wrong – change orders are a natural part of any long-term relationship and the absence or infrequency of a change order can actually be an indicator that no one is watching scope. And that is a bad thing – even if the immediate cost savings of “free work” sounds good now. The debts are always settled. I am sure anyone who has managed or delivered a long-term project understands what I am saying and is hopefully wryly smiling and not experiencing PTSD.
The point here is that contractual relationships don’t end at signature. Projects, relationships, needs and wants will wax and wane over time and most contracts have mechanisms for how changes, expansions or reductions are handled. These are negotiated in the glorious “pre” stage by the Gods and Goddesses of “drafting” and handed over to us mere mortals to handle the details. But all those issues that were put into the “parking lot” or “tabled” until they became an issue have a nastily high probability of becoming real in the post-signature world. Without the right staffing, process or tech to help manage these “details” (which may cost millions over time), companies run the risk of losing out, paying too much, recovering too little or just souring a relationship that started off so strongly. Again – if you invest X to create something, doesn’t it stand to reason that you invest something to make sure it lives a healthy life?
Advanced: Financial and other performance focus
So far, our trip up the value ladder has been focused on reactive activities and being prepared for them. But at the higher levels it really is about being proactively on the front foot in the management of your individual contracts, if not your whole portfolio. This is the nexus point where the legal language and business outcomes truly meet and the Venn diagram becomes just one circle. Here is the part where we dig into our contract and contractual relationships, pull data from within and outside the contract and evaluate whether we are receiving the value we signed up for or are spending too much and getting less or performing too much and getting underpaid. Both happen way too much. This is where we stop looking at the standard KPIs which produce the “watermelon” effect (all green on the outside and red inside) and focus on what the business needs.
Post-signature support is the area in which we are getting a bit away from cookie cutter standardization and more into process/policy discipline. There are simple things here, too, such as, are we buying the same thing twice? Are we enforcing our discounts? Are we over- licensed? But beyond that, this level of support needs to look at the contractual relationship, how the performance is tracking and if that performance shows a true partner or a party trying to min/max something. It takes digging and knowledge of where and what to dig, but this is where the great separate from the good.
There is a lot more in this space, but hopefully this piece has provided a flavour as to why post-signature isn’t just keeping track of your documents. If the next FAQ is “why Michael Corleone is an incredibly complicated character,” that will simply have to wait for another time.
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