The revolution in post-signature contract management has been saved
The revolution in post-signature contract management
Realizing value through management of executed contracts
In many organizations, contracts are about one thing: getting to the signature. But the phase that begins after execution is where contractual value is truly won or lost. In this article, we unpack the strategic, financial, and operational benefits that can accrue from effective management of the post-signature process.
Coronavirus: The catalyst
When the COVID-19 pandemic hit, the demands on post-signature contract management exploded. Customers and suppliers raced to:
- Understand the status of performance
- Seek variations to terms
- Identify rights, obligations, and the implications of contract change and amendment
Companies needed to know whether they, their customers, or suppliers could renege on contractual commitments. The necessity for transparency and clarity of contractual obligations, rights, and reliefs was thrown into sharp relief.
In this article, we discuss why obligations management is such a critical phase of the contract life cycle, and how post-signature is where the value of contract management is truly won or lost. By understanding this, contracts may be seen for what they are—a strategic business asset—rather than just a legal document.
The end-to-end process
Contract management is the process by which businesses manage the life cycle of their contracts. Many customers and suppliers spend most of their time and effort focusing on winning that deal, drafting, and negotiating that contract—all staple pre-signature activities—yet may neglect the equally, if not more critical, post-signature phase activities.
“Post-signature” refers to the activities that can or should occur after a contract is signed. To be clear, these are contract management activities, but they may not be getting appropriate attention and focus. You can segment these activities as:
- Compliance with the legal components of contractual relationships, such as notices, change orders, renewals, and amendments
- Commercial obligations, such as invoicing, discounts, and performance management—frequently referred to as commercial management
Post-signature activities are often set aside until the eleventh hour, or just until an unexpected pandemic forces everyone to take notice.
Contract management post-signature
When we say post-signature, what exactly are we referring to? The answer includes:
- Ensuring compliance with the terms and conditions (getting the value bargained for)
- Managing contract amendments
- Adhering to production, quality assurance, packaging, and delivery requirements
- Resolving claims and disputes
- Measuring commercial performance
Post-signature activities fall into two buckets:
- Compliance with contractual and regulatory obligations, change order and dispute processes, notices, renewals, amendments, and reporting (contract management)
- The more financially focused activities, such as performance, pricing adjustments, invoicing, and discounts (commercial management)
According to the World Commerce & Contracting Association (WorldCC), 9.2 percent of annual contract value is lost through poor management across the whole life cycle, with the majority of that lost value occurring in the post signature phase. This is consistent with what we might expect amid post signature issues like price changes, invoices, late payments, service levels, discounts, and auto-renewals.
Knowing what the contract says is just the start to finding value. The real value perhaps comes from avoiding the “value gap” that can arise when the anticipated benefit at the start of the arrangement gradually erodes over time.
Less than 30 percent of organizations have centralized or center-led post-signature contract management resources.3 By diverting most of their resources to the pre-signature phase, many companies leave few to none to contest the real battle that begins post-signature. Sealing the deal is important, but so is profit—and it is in the post-signature phase that profit is best mined.
However, the balance of focus across pre-signature versus post-signature has begun to change.4 Today, companies are investing in a number of key areas:
- Analyzing, assessing, and reengineering the post-signature processes
- Introducing more comprehensive and robust approaches to legal and obligation management
- Investing in the multidisciplinary and cross-functional talent needed to improve post-signature contract management
- Investing in contract management technology
Many organizations are now thinking beyond the data found within the contract itself and focusing on how it can be linked to enterprise data contained in financial, HR, procurement, and customer relationship management systems. Thirty-nine percent of companies report that they are improving post-signature processes, and 25 percent state that they are increasing the role of commercial professionals in post-signature risk management.5
Companies may want to consider approaching contracts more broadly. A broad-based approach marries process standardization, automation, global delivery, alternative resource models, and continuous improvement. For a successful transformation to occur, organizations also may need to use technology to support other aspects of change within their organization, including:
- Digitization of the contract portfolio
- Analysis and understanding of the pain points across the entire life cycle
- Development of contract data standards
- Quantifying the overall cost per contract to the organization
- Consolidation of resources
- Increasing clarity over organizational roles and responsibilities
Without the proper investment in people, process, and even content, the best technology may only offer a temporary fix.
The next frontier
Contracts are a well of data that can be used throughout the organization and sourced for profit. They provide a framework for mutually beneficial business outcomes and generate economic value. They are also tools for risk management, with a formal record of rights, responsibilities, and obligations. Finally, contracts can provide intelligent insights to the overall business and even be a testament to an organization’s brand and corporate values. Meanwhile, the contracting process is an opportunity to collaborate both within the organization and externally.
With a change in the way contracts are seen, a change in overall perception of the post-signature phase will likely follow. The future starts with elevating our view of contracts and remembering that contracts are not just legal documents but so much more—they are strategic business assets that merely happen to contain both legal and commercial terms.
1 Tim Cummins, “Poor contract management costs companies 9 percent—bottom line,” 2 World Commerce & Contracting (WorldCC) blog, October 29, 2012.
2 Deloitte and WorldCC, When technology meets humanity: The future of contract management, February 2021.
3 Deloitte and WorldCC, When technology meets humanity.
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