A lot of contracting energy focuses on the avoidance of catastrophic loss and not the little things. But from small things big things come. The same is true with contract management. The whole lifecycle is full of traps and tricks and opportunities. Most services will focus on the avoidance of big, dare I say, obvious losses. But many contractual relationships can end, not from one great loss, but more often than not a death by a thousand cuts. To continue my mixing of metaphors, the devil really is in the detail. Or to be clearer – a proper contract management solution needs to focus on where money is lost every day.
So where is money lost? Certainly there are the nuclear examples of massive confidentiality breaches or theft of intellectual property or outright fraud, but those are seen as often as Haley’s Comet. Hannah Arendt spoke of the “banality of evil” and I propose that we look at the commonness of overspend when we look at contractual relationships. Here are a few real examples:
- Change Orders: Very few companies have a thorough process for verifying whether or not a change order should trigger addition spend or should just be in scope. Often times the necessity of urgency overrides a lack of process and companies routinely spend more than needed on things they have already bought. Imagine going to a market to buy a simple can of beans but then getting an extra charge because the beans come in a can. Logic would dictate that the can comes with the beans, but often times companies end up paying for both.
- Extended Short-Term Projects: It is industry standard that any service contract will have a long-term and short-term rate card. This is a fair concept to both client and vendor. But what happens when the short term project gets extended beyond 6 months? Do vendors offer a back-discount? Unlikely.
- Discounts: Many IT suppliers will audit to ensure that a client is not overusing a license structure but very rarely will they proactively point out potential discounts or optimization of licenses across a portfolio.
Please don’t think I am anti-vendor. I am a vendor! It is just that the system does not incentivize cost cutting behaviour and this is why companies need expert advice and processes to help them find where money is lost. Contract Compliance & Optimization services are geared to focus on money and outcomes. Here are some examples of how we address the points above:
- Change Orders & Projects: Many processes ensure there is proper signoff and the documents are stored correctly. Our processes verify the proposed Change Orders or Work Orders against the contract for scope, price and overall intent so that our clients can make informed decisions before accepting.
- Discounts: There are many invoice validation methods out there. Ours checks on 8 factors. But beyond the individual invoice battles there are larger wars on holistic pricing adjustments and discounts. To put it another way, our processes don’t just look at the trees, but rather the whole forest to ensure our clients are covered.
The Contract lifecycle is a long, document and information rich area. When investing in a solution, it’s important to remember where the money is really lost or gained.