Contract management doesn't have to be complicated.
In fact, the simpler your contract management solution is, the more effective it will be in supporting critical processes like spend analysis.
Ultimately, an effective contract management system only needs to provide four things:
- Secure Storage
- Easy Access
- Important Alerts
- Simple Summaries
Make sense on the first two on contract management list. Contracts should always be secured and, when needed, easy to access. And alerts are probably the most important aspect of any contract management system.
But when it comes to summarizing the contents of a contract, sometimes less is more. Now that's a hard concept on contract management to get our heads around.
We live in the era of Big Data, where the presumption is that if we can slice and dice every bit of information in a contract we'll be able to do an in-depth analysis and see things that we normally wouldn't see by simply reading it. Well, guess what? Contracts aren't the Matrix. Some grand truth won't be revealed to you by running the words through an algorithm and staring at the statistics it spits out.
Case in point: the English language only has a handful of words that actually mean anything. In a given sentence, like this one, most of the words are only there to provide context for the few that actually have meaning. Contract's aren't any different. In fact, contracts probably have more useless words in them than most other documents.
Yet many organizations waste time and money parsing through data they'll never actually use when they implement large, complicated software solutions to manage their contracts.
Now I'm not saying that having all of that information won't be useful. But most organizations don't have the internal bandwidth or skill set to use the information in a meaningful way.
Also keep in mind, these systems require manual data entry, so the more you want out of them, the more you have to put in... and there's a real cost to having people spend time reading contracts and manually inputing data. So, if most of the information in a contract is not worth capturing, what are the key elements of a contract that would be useful to summarize -- without having to open it up and read it?
#1 - Contracting Parties
One of the most basic, yet overlooked, pieces of information in a contract summary is who the contract's with. And not just the name of the other entity, but the business address and contact information (if available) is equally as important.
#2 - Start and End Dates
Sometimes even a simple, graphical representation of a contract's timeline is enough of an overview for a contracts manager to decide whether or not to spend time opening it up and reading it. Dates also drive alerts, which should be the backbone of any good system.
#3 - Renewal Terms
Along with knowing when a contract is due for renewal, it's also important to know how it will renew. A simple indicator that shows whether a contract auto-renews or needs some action by the parties can save tens of thousands of dollars for organizations that may no longer need the goods and services in an auto-renewing contracts, or find themselves in a bind because they forgot to notify the other party about renewing.
#4 - Warranties
If something goes wrong in a contractual relationship, the first thing either side will do is see how they can fix it. Having the warranty clause right there in the summary will save hundreds of man hours per year in contract reviews.
#5 - Termination
If something goes wrong and it can't be fixed, or the parties simply don't want to do business with each other anymore, they'll look to terminate the contract. This is perhaps the most sought after piece of information in a contract, second only to the end date. Even a simple yes/no indicator in the summary that shows whether or not the contract allows a party to terminate for convenience will exponentially increase the speed with which contracts are reviewed.
#6 - Pricing
Remember, this is a contract management, not spend analytics. A simple summary stating the Total Contract Value (TCV) at the time of execution should suffice.
That said, sometimes reading the contract may be the only way to know what it says. And certain organizations may have some very specific information they need in their contract summaries.
But it's much easier and cost effective to start with a simple summary and add the one or two pieces of information needed by your organization instead of over spending on a complicated tool and then paying for customization to make it simpler to use.