Mark Rhodes, MD of ContractWorks, details how technological innovation can help businesses avoid the costly practice of ‘file and forget’ and stay on top of contract obligations.
From a business perspective, it’s a tale as old as time. Maximise company resources to get a deal over the line, but once the contract is signed, file it away and move on to the next pressing issue. A recent survey from EY found that 71 percent of companies don’t monitor their contracts for deviations from standard terms, whilst 78 percent don’t systematically track contractual obligations.
With companies routinely missing the opportunity to renegotiate or terminate contracts that are no longer needed, the culture of ‘file and forget’ has the potential to cause a significant negative economic impact.
We recently surveyed 100 legal departments in businesses with over 250 employees and found that more than half of UK companies are regularly allowing contracts to automatically renew in error, costing them an average of £40,000 per agreement. One respondent even admitted that their company had mistakenly let a contract auto-renew, costing them over £250,000.
Whilst this is an extremely costly oversight for any business, missed renewals are just one consequence of losing visibility of contracts once they’ve been signed. Failure to stay on top of contract obligations can result in non-compliance, with consequences including financial penalties, lost customers, reduced productivity, reputational damage and even formal disputes.
The past 12 months have thrown up challenges upon a challenge for every department of every organisation, with the reality of a displaced, remote workforce making business continuity during the crisis extremely difficult. It’s a situation that has only made the problem of accessing the right contract information and staying on top of obligations more acute. However, this is where technology can offer a solution.
Digitising legal and risk management processes can ensure organisations maintain contract visibility, eliminate unwanted renewals, and provide a significant opportunity to protect finances and keep reputations intact.
Yet, despite this potential, there is still significant underuse of technology to this end. According to EY’s research, when it comes to contract management, 99 percent of businesses said they do not have the technology or the data they need to optimise contracting processes, despite 59 percent believing a greater use of technology is the best route to saving costs.
Similarly, our research found that 87 percent of respondents would be comfortable with artificial intelligence (AI) being used to maintain contract visibility and 62 percent wanted to keep pace with the digital transition. But despite this overarching enthusiasm, too many businesses are struggling to keep pace with the digital transition.
For many companies, using new technology to manage post-signature contracts and maintain visibility of obligations has been seen as a ‘nice to have’, and it is often a low-priority topic. Add to that the perceived time of implementing new technological solutions and the burden of making a business case, and it is not hard to see why digitising legal and risk management processes slip down the to-do list.
However, using technology to improve contract visibility and reduce risk needn’t be difficult, expensive or time-consuming, provided there’s a focus on the core problem to be solved and an understanding that the solution doesn’t need to fix every contract management challenge at once.
Pick off your highest priority problem first, rather than trying to ‘boil the ocean’ with an all-encompassing technology intervention. And if the world of technology – and Legal Tech, in particular – feels a little overwhelming, it’s useful to segment the options for solving your problems into three broad categories.
● First, optimise the technology you’ve got, which usually means taking some time to improve processes that exist around commonly used tools, such as SharePoint or Google Drive. Some customisation, usually with outside help or support from a willing IT team, can be done to adapt systems to your contract management requirements and, if the technology’s already in use, adoption will be straightforward. Beware, however, of the risk of non-purpose-built platforms being open to human error, as well as the likelihood that help and support may be hard to come by.
● Second, onboard a simple ‘point’ solution focused on solving a particular contract management problem. This type of solution will come from a third-party vendor and most likely take the form of software as a service (SaaS). For example, if missed contract dates and untracked obligations due to lack of contract visibility is the main issue, a contract tracking and notifications system, offering a single source of truth, will be the right area of focus. Enhanced with optical character recognition (OCR) and advanced AI-powered text analytics, such a system can boost the visibility of key contract details and automatically add key contract tags for renewal and termination dates. It’s worth keeping in mind how the solution will sit alongside existing processes and systems and how effectively it will scale alongside your business and your needs.
● Finally, go all out for a full, enterprise-level digital transformation. A typical contract lifecycle management (CLM) solution will most likely solve every need throughout a contract’s life – from drafting to redlining to storage and signature. CLM tools, hosted in the cloud or on-premise, solve for complex workflows and typically integrate with systems used elsewhere within the organisation. However, enterprise-level solutions can be a heavy lift, both in terms of resources required (people, cost) and managing a sizable change. If the appetite exists and resources are readily available, a full CLM solution may fit the bill. But be prepared that the time to implement will be measured in months, not days or weeks, so your problems won’t be solved immediately.
Losing money through unnecessary costs and missing opportunities to grow existing customer relationships will always be a cause for concern for companies. Now, with business development leaders saying that inefficiencies in the contracting process are slowing revenue recognition, how much longer can businesses afford to keep overlooking this problem?
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From productivity to collaboration to security, the COVD-19 pandemic has shone a light on the process improvements that can benefit almost any business – and the effective use of technology often sits at the heart of choosing the right solution. Creating visibility of critical contract data through dedicated contract management software is just one way an entire organisation can benefit.