6 Sticking Points in the Contract Lifecycle – Part 1, Pre-execution

Some business you can do with a phone call and a hand shake. But when your business depends on the outcome, you need a contract. Getting a contract in place (or acting according to its terms) creates sticking points. Understanding the contract lifecycle means identifying those sticking points and reducing friction so business gets done promptly but still safely under contract.

Here are six sticking points in the contract lifecycle and suggestions for easing them.

Sales – Getting a Contract to Close the Deal

Sales team members spend time and energy calling prospects, encouraging consideration, investigating questions, and meeting objections. When a prospect is ready to buy, the need for a contract sometimes slows or derails the deal. Here’s how:

• Sales does not have access to the appropriate contract for a product or service. Instead, the sales rep must email the legal department to receive a draft contract, supplying the prospect’s information (hopefully without error). In the meantime, the prospect decides to wait on the purchase or goes with another vendor who was faster on the draw.
• Sales has a draft contract from a previous sale and uses that. Unfortunately, the contract was not designed for the goods or services the customer wants to buy. Later, legal finds that the contract contains language long since revised in light of changes to the regulatory or legal environment.
• Sales sends the prospect a one-size-fits-all contract, approved by legal, containing every conceivable protection for the company, whether relevant to this sale or not – and the prospect balks. A simple purchase results in a drawn-out series of emails and redlined drafts, delaying the sale by days or weeks.

Contract management software eases this sticking point. Self-service contracting gets the right contract to the sales person – and your potential customer – faster. A sales person can request an appropriate contract template through your company’s secure website. If a simple contract is required, the language in the template can be reviewed and approved beforehand by legal. The sales person can send it for customer approval by e-signature.

You then close deals and recognize revenue faster.

Contract management software makes this possible because

• Legal can review language in common sales contract templates once and be assured that the language will not be changed without further review.
• Contract templates for different sales types can be set up beforehand. Sales persons are directed to the correct template based on questions in a self-service form.
• Simple, low-risk sales agreements can be kept simple and placed in the hands of sales, while more complicated, high-stakes agreements can be directed for internal approvals. For either case, reporting and alerts keep pending contracts in front of those whose attention is required, avoiding unnecessary delays due to lost emails and missed calls.
• The sales person can supply the customer’s information directly through a form, creating a version of the contract ready to be sent for e-signature as well as an accurate contract record for internal reporting.

Procurement – Initiating a Contract Request for Crucial Purchases

We have all faced delays when ordering ordinary supplies to do our work – disappointment is usually the only cost.

But a growing business often needs to lock in a supply of raw materials, parts, shipping commitments, storage, or expert services quickly in order to seize opportunities or simply meet demand. Getting a contract in place for purchases can become a sticking point. Here’s how:

• Technicians and supply chain analysts identify specific goods and services needed, then spend time finding the right person in procurement to handle the contract required.
• Procurement people are usually spread thin. Receiving purchase requests or contracts to review over email is inefficient – things fall through the cracks.
• Specifications are crucial in certain procurement contracts, but getting the correct language on paper to protect the purchasing organization and demand more from the vendor takes collaboration – and meeting time is scare.
• A contract with the vendor already exists, with discounts built in for large volumes – but people are unaware of it. To avoid duplicative contracts and missed savings, a multi-day search for the contract and a report on purchases already made under its terms ensues.

Contract management software eases this sticking point. Authorized technicians can use a form to request a contract and be prompted for all technical details relevant to procurement. Based on the information supplied, procurement can see if a vetted supplier or contract meeting the need exists in the system and direct the purchase there. Reports on spend under that relevant contract can signal if a threshold has been met for discounts on the purchase.

If a new contract is needed, procurement can send draft contracts not only to legal but to the stakeholders who are requesting products that meet certain benchmarks. Review of these drafts can take place in a distributed fashion, with workflows that prompt the right people for review and approval. Even if vendor paper is used, the contract can quickly be sent for review by all stakeholders.

Contract management software makes this possible because

• An automated purchase request process can streamline purchase approvals, allow business people to upload contracts for review, and create an efficient workload queue for procurement.
• Real-time reporting on spend under contract can keep discounts from being overlooked or lost in an isolated corner of the shared drive.
• Online review of contract terms can allow stakeholders to suggest changes concurrently or in a prescribed order, even when reviewing third-party paper such as a vendor’s contract.

Negotiation - Getting Agreement from the Counterparty and Inside Counsel

Anything beyond a simple contract usually requires negotiation and changes to the language. It is not surprising to send a contract to a counterparty and receive it back, not with a signature, but with redlining and suggested changes in language. This normal back-and-forth exchange of contract drafts can bog down and become a sticking point. Here’s how:

• The counterparty returns a contract asking for a few changes. Even if red-lining or “track changes” has been enabled, due diligence requires that someone on your team – often someone in legal – check the entire contract to be sure that nothing else was deleted or changed. This takes time, and your contract may need to sit behind others in queue until that time is available.
• The changes proposed by the counterparty look reasonable, but as a contract manager, you cannot be sure without having an attorney look at them. Getting the contract in front of the attorney, whose highly valued time is already completely booked, becomes a job in itself.
• The counterparty finds some of your proposed language – perhaps your “hold harmless” clause or arbitration conditions – too stringent and asks for something he is more comfortable signing. That’s fine, but now you need to flag down legal to draft a substitute clause that still does the job.
• A vendor offers a greater discount in return for a larger purchase commitment from you. It looks like a good deal, but should you seek approval for the higher dollar commitment you are making for the company? If the answer is yes, you will need to send the contract to finance or the executive office for their approval and thus delay the deal.

Contract management software eases this sticking point. Contracts are emailed from and received into the system where version control keeps the record of changes clear. Versions are automatically compared for changes in language, saving staff time and reducing errors. The legal team has worked with you to create a clause library of approved “fallback clauses” that you can deploy in response to objections from counterparties at your discretion. And where changes do require approval from attorneys and executives, you can use the system to get the contract in the queue for legal review and track its progress without emails and phone calls. The minute the changes are approved, you have a revised contract to send to your counterparty.

Contract management software makes this possible because

• Automated workflows and escalations keep the process moving forward without manual labor. A manager can request approval of a contract change or an increased spend amount within the system, where it is directed to the approving parties automatically.
• Automated version comparison notes any differences between the version you sent and the one the counterparty returned, regardless of how the changes got there.
• Clause libraries include approved language that can be substituted by non-lawyers during negotiations. This speeds up negotiations by quickly dispensing with small disagreements. Legal can review the fall back clauses periodically to guarantee that they still protect the company. And use of fall back clauses can be limited to trained managers to reduce risk while still empowering negotiating staff.

Contract management software’s first job is creating efficiency. 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 after signature are also common sticking points. Read our next blog to learn more about

• Renewals and Expirations – Being Ready to Act in Time
• Contract Management – Staying in Compliance and Meeting Obligations
• Payment – Paying and Getting Paid for Work Completed