Contracts are wonderful tools. But throwing them together and assuming that alone is enough misses the mark. The true value is in how you use them. People frenzy over negotiation tips: what tone of voice to use, what body language to try, what style of socks to wear. In reality, even the best tactics won't compensate for an ineffectively managed contract. Whether they number in the tens or hundreds, you have to manage your contracts to see the biggest return on your investments. What follows are a few things to think about as you do.
What is a Contract?
When a lawyer says "contract," organization's think of seventy-paged, bound behemoths. What we actually mean is any binding terms: the terms of use you click to “accept” for software, or terms on the back of a delivery order. There's more: the one or two-page documents in addition to that seventy-page behemoth should be on your radar, because it doesn’t take seventy pages to run into trouble.
The Opportunities You Miss
Contracts are to the business world what World of Warcraft is to gaming. On the surface, it seems straightforward. But underneath, strategy is key. There are boundless opportunities to get little wins. For example, knowing when to push for volume discounts or cancel heavy commitments before they renew.
In one example, a small organization had six different contracts with six different coffee vendors. No one is drinking that much coffee. More importantly, who has the money to spend on duplicate services? With better management, you try to avoid this. If one or two slip through, you’re still in a better position to catch them and possibly use the opportunity to get better terms from the vendor you like.
You Can’t Afford to Not Know
Also common are stories about organizations which, unaware a contract like a lease was expiring, found themselves unexpectedly out of a space. The property was either sold or leased out from under them. You have to know what your contracts say and where they’re at. Is a contract you want out of coming up on renewal? Is a contract you want to renew ending? Very few people build in back-ups to cover major crisis, making it even more important to stay on top of things.
What to Focus On
There are two really important aspects; ease and visibility. With ease, can you easily find and retrieve a contract? Do you use wonky/hard to predict search tags, or do you dump everything in a desktop folder titled “Contracts"?
And with visibility, how easy is it for you to see an overlap - for example, with coffee vendors? Can you tell which contracts are up for renewal or expiration?
Ease can be a similar bottleneck. The harder it is to make sense of things, the less likely you are to bother with it, and the more likely things are to slip through the cracks.
How Do I Start Organizing?
To better understand contract management there are blogs like the Contract Management Software Blog that cover different contract management topics. Spreadsheets can be hard to keep up with: alternatively, companies selling contract management software often put on free webinars.
There are also software programs to help store and organize. Organization’s starting out tend to opt for something simple, like setting up a system on a cloud app. Here, it’s important to have the right protections in place, like access permissions where only certain people can see specific details and security protections to mitigate the risks with using an external cloud, like a hack. If an organization goes this route, it should periodically revisit its need and ability to transfer over to an in-house system as it grows.
Takeaways
In terms of getting started, many organizations tend to find contract organization to be the lowest hanging fruit to get more out of their legal council and contracts. Here are a few takeaways:
- Contracts have more power when you have a good command of them. What they say, when they were signed, when they expire, etc.
- To better leverage contracts put some type of contract management system in place that gives you visibility into, and more control over, your different types of contracts.
- A contract management system doesn’t have to resemble mission control. The most important thing is putting a system in place that’s easy to remember and follow.
- There are a variety of reasons why this is important. The most important being missed negotiation opportunities or something more dramatic like unexpectedly losing a supply source.