6 Sticking Points in the Contract Lifecycle – Part 2, Post Execution

In Part 1 of this blog, we looked at three sticking points in the contract lifecycle that occur before signature. Understanding the contract lifecycle means identifying those sticking points and reducing friction so business gets done promptly but still safely under contract.

Here are three common sticking points that occur once the contract is executed. 

Renewal and Expiration  – Being Ready to Act in Time

Contracts provide predictability in business. There’s a paradox here: relying on contracts that are working well can create a dependence that lessens the company’s strength when it comes time to renegotiate. Consequently, staying ahead of contract expirations and renewals should be standard operating procedure at any organization. All too often, however, contract expirations and auto-renewals can become a sticking point. Here’s how:

• Expiration dates come and go without warning, and the terms negotiated so diligently when the contract was first signed go with them. The counterparty reverts to a standard contract with prices and conditions more to their advantage.
• A contract is set to auto-renew on the same terms – unless your organization provides notice to cancel and renegotiate. Without enough advance notice or a reliable tickler that the cancellation date is approaching, there is no time to do research and prepare before renegotiation. In the press of other business, the company simply renews under the same terms.
• Sales contracts that are working well don’t draw attention to their potential to work even better. For example, a organization may provide goods and services to a satisfied client in an annual contract that the client will certainly renew. Based on the client’s purchases over the years, the potential exists to upsell this client with a new contract that would increase the organization’s revenues while providing a better deal for the client. The opportunity escapes notices because visibility into contract performance is limited – for sales, finance, and the executive team.

Contract management software eases this sticking point. The most commonly requested feature – reports and email alerts of upcoming contract expiration dates – is one of the easiest to implement. Contract managers can see the contracts that are approaching expiration or auto-renewal months in advance and begin assessing the contracts’ performance. They can also research the market for better terms or alternative vendors. The savings from this proactive approach can be significant, especially in industries with fast-changing technology such as telecommunications, networking, electrical power, and manufacturing. Using the same contract management system, non-contract managers can review contract performance as well, spotting opportunities to upsell clients with better terms.

Contract management software makes this possible because

• Expiration and renewal dates are stored as metadata, information in distinct fields that can automatically trigger alerts and start workflows days, weeks, or months in advance.
• Contract performance on sales, purchases, licenses, etc., can be summarized in auto-generated reports sorted by volume or dollar amounts. Drill-down capability lets managers quickly switch to a detailed view of the underlying data for client or vendor records that stand out. Unusual sales or purchasing trends become apparent quickly, encouraging evaluation of contracts in real time.
• Contract performance can be reviewed by contract managers, finance, sales, or any other personnel with permission. This lets the business users with the most at stake take appropriate action to see that contracts are renewed on the best possible terms.

Contract Management – Staying in Compliance and Meeting Obligations

Ideally contracts serve as a road map, a plan for the organization and its counterparty to reach mutually agreeable ends. Very often, however, the people getting the job done are prioritizing, accomplishing, and verifying the work based on their own criteria. Competing tasks, delivery of needed materials, availability of labor, even the weather, can lead to slipped commitments under contract. At a minimum, keeping track of these commitments is the job of contract manager, but it can easily become a sticking point. Here’s how:

• Contractual obligations are nicely spelled out in the contract but remain buried there with no power to remind managers or executives of the need for action by a certain date.
• A list of obligations may be available to a contract manager, but that person must spend an inordinate amount of time checking on the status of a job by phone, or even hunting down the right person to report on the job.
• Confirming that the obligations are fulfilled falls to the few people with access to the contract – the contract manager or managers. As contracts multiply, the managers ability to properly check and verify is overwhelmed.
• In the face of a missed deadline, the project slows while both organization and counterparty consider their remediation options.

Contract management software eases this sticking point. The specific obligations under contract – or in a later statement of work – can be entered as individual items with owners and due dates. The owners are reminded of the approaching due dates and can either work to complete the task on time or prepare for a missed deadline well in advance. Reports display obligations and their status. Contract managers can monitor completion of obligations by owners who are closer to the actual work, reducing the need for round-about, person-to-person verification. And evidence of completion of tasks or compliance with contract terms can be entered in the system as a reference point should disputes arise later.

Contract management software makes this possible because

• Obligations can exist as separate items, related to the contract but individually driving work flows, alerts, and reporting. Extracting obligations can be done by contract managers or even with extraction tools using machine learning.
• Obligation records hold information about the obligation’s due date, owner, and status. A good contract management system will allow recurring obligations – such as the need to check on job progress or ongoing compliance with engineering standards – to create recurring tasks for their owners.
• Ownership of obligations can be shared across the organization so that business users and job managers directly enter verification data in the contract management system. This reduces person-to-person transfer of information that often wastes time.
• Remediation language for missed or late obligations can be accessed without delay, keeping projects on track, Indeed, with obligation reporting, contract managers can see at-risk obligations and prepare by alerting counterparties in advance, rescheduling, or invoking remediation terms.

Payment – Paying and Getting Paid for Work Completed

In most contracts, money is exchanged for goods or services. Before an organization lets go of its cash, however, it wants assurance that the goods were delivered or the work was done. Buyers want to be sure of what they bought before paying. Sellers want that revenue as soon as possible. Paying and getting paid can become a sticking point. Here’s how:

• The people cutting the checks in an organization are not usually the people receiving the good and services. Getting confirmation from the users to accounts payable can cause delay, especially when a delivery needs to be checked against the terms of the contract.
• An organization confirms delivery of goods and pays regularly – until it notices that deliveries are frequently late and often contain some wrong shipments. It starts withholding payment until the seller corrects these problems.
• Complex, ongoing services usually require payments in stages so that vendors are assured of some revenue as they commit to a large-scale project. Confirming that benchmarks are being met takes time, and any disagreement on outcomes can lead to a delay in payments.
• A government contract may require that work be completed as specifuied and that the provider maintain standards for worker training and education or workplace safety. The company is slow to demonstrate it is in compliance, and payment is delayed.

Contract management software eases this sticking point. With access to a contract’s conditions for delivery or statement of work, contract managers can efficiently create obligations and tasks around these deliverables. A sign off or evidence of delivery can be required before payment is approved, with higher-level approvals required for more important and costly deliveries. Reasons for a delayed payment can be determined quickly, and vendor and recipient can both take action to remedy the situation. Terms for late, incomplete, or missed delivery deadlines can be invoked routinely, allowing for payments at reduced rates for clearly documented reasons. This avoids standoffs where frustrated organizations withhold payment altogether or cut off services for lack of payment.

Contract management software makes this possible because

• Payment and remediation terms can be clearly identified for all users of the contract management system and not lost in unshared contract documents.
• Delivery dates, conditions, and verifications can be recorded in the system (or in related line-of-business systems), making it easy to reference the facts before deciding to release payments.
• Business users or managers at the point of delivery can provide and approve evidence of completion, reducing time wasted in person-to-person verification by contract managers alone.
• Automated reports on deliverables under contract can reveal vendors and deals where problems are ongoing. Action to remedy the problems can take place so that both sides get the benefits they are seeking from the contract more quickly.

Contracts ought to smooth the way for business. The three sticking points mentioned above show that where contracts need human attention, business can slow down if no automation is in place. 

Three other parts of the contract lifecycle before signature are common sticking points. Read part 1 of this blog to learn more about these:

• Sales – Getting a Contract to Close the Deal
• Procurement – Initiating a Contract Request for Crucial Purchases
• Negotiation - Getting Agreement from the Counterparty and Inside Counsel