Does this sound familiar?
“We need to buy some widgets from this supplier, and we need them yesterday. Let Procurement know so that they can get a contract in place by Friday.”
“We called this supplier for technical support and they said we didn’t renew our maintenance last year. Get Procurement to find out what’s going on.”
“This invoice from the supplier is $20K more than last year and it says we have to pay in 30 days. Ask Procurement to take a look at it.”
As a long time procurement guy, I’ve often felt like the sole purpose of my existence was to know where contracts are, when they were going to renew and what they actually said.
This became even more complicated when I started to specialize in IT contracts.
And it’s true. Procurement usually is, and should be, the custodian of contracts in an organization. But that doesn’t mean other groups in the organization don’t have a role to play.
The life of a contract can be broken down into 3 key phases:
- Negotiation Phase– During this phase the parties are going back and forth on the pricing and terms & conditions (T’s & C’s). While Procurement is often leading the negotiations, Legal will play a significant role in the review and approval of non-standard terms, risk assessment and mitigation strategies.
- Execution Phase– Before executing a contract, the Finance teams for both parties, particularly the Accounts Payable and Accounts Receivable teams, need to understand and prepare for the negotiated payment terms and tax implications.
- Administration Phase– Once the goods and services have been delivered by one party and payment remitted by the other party, the contract is considered live and must be managed in terms of milestones that will trigger payments, renewal dates and service levels. With technology agreements, IT plays a key role in this phase
While Procurement is a major stakeholder in all 3 phases of the contract lifecycle, other groups such as Legal, Finance and IT are also key contributors.
HOW TO GET FINANCE, LEGAL, IT, AND PROCUREMENT ON THE SAME PAGE
Unfortunately, the perception within these groups is that they simply need to tell Procurement what they need and and it’ll be delivered to them…and when it’s not, the blame for poor contract management lands on Procurement’s shoulders.
But if we can demonstrate to these groups that they also have specific requirements once the contracts are signed, we’ll get the buy in needed to develop and maintain a sound contract management process.
And sometimes that’s as simple as showing how good contract management makes it easy to securely store contracts, easily access them when needed and provide a useful and accurate summary of what’s in them.
So the next time you’re thinking about a contract management process for your organization, avoid falling into the trap of making it into a “Procurement Thing.”