I was at a meeting recently where a company was explaining their approach to vendor management and how it encapsulated contract management. When I dug a little deeper they explained that this contract management also covered various commercial aspects such as invoicing, rate cards and other Excel-friendly data points. I was impressed. But I dug just a little deeper and asked about the cost of living adjustments, rebate mechanisms, additional or reduced resource (so-called ARC/RRC adjustments), re-pricing thresholds or other aspects found in Master Services Agreements or written terms and conditions, they indicated that was not part of their remit.
Now I use this example to highlight a common misconception, which is that “financial terms” are in Excel and everything in Word format is “just legal” or boilerplate. Please do not get me wrong, Excel is a useful tool and an efficient way of locking in certain financial terms in a contract. However, the program Word is not just easier for showing “track changes” or spell checking but often contains the detailed mechanisms which have a deep impact on finances, performance, forecasting and budget protection or expansion.
Many systems or companies do an excellent job of capturing the written numerals in Word documents but many also fail to crack the code of Word and actually translate commercial and legal language into levers for making a contract more profitable or ensuring it stays budget. Here are a few quick examples:
- Most software or contract management systems will quickly pickup a written codified service level (i.e. performance at 95%, etc.) but many miss the verbiage regarding the parameters relating to x numbers of failures in y months equals a penalty or more complicated concepts around root cause analysis, excuse clauses (sometimes called “relief clause or savings clause” or interdependencies in SOWs which could be used for SLA relief (hint – don’t just look in the schedule marked Service Levels)
- Anyone with basic math skills can quickly apply a rate card to a unit of work and come out with a charge in a change order, but it takes a different level of sophistication and mix of skills to perform an analysis of the work to see whether long term or short term rates ought to apply, whether this is warranty work or whether or not this supposed change is already within scope.
Most contracts are written primarily in Word and the verbiage is there for a reason. Ignoring the language because it is not numeric is not a good idea and companies should expect more from their contract management solution. The most effective contract and commercial management processes will monetize those clauses affecting the numbers so that you can track, manipulate and really go deeper into managing risk and opportunity.