For contracting to succeed, you must increase central visibility of the terms and conditions of agreements, and have systems in place that provide pro-active notifications, allowing contract managers to take pre-emptive action on commercially sensitive trigger points and deliverables. Aberdeen Group’s Advanced Sourcing and Negotiations Benchmark Report (January 2007) found that approximately 21% of identified savings are lost at the end of the strategic sourcing process.
Two major reasons for such leakage are as follows:
1. Contract Negotiations - Often, pricing and terms & conditions change while negotiating the contract and ultimately end up differing from the results of sourcing event.
2. Contract Adoption and Compliance - Failure from business units or various sites to comply with newly negotiated contract or, once a contract is implemented the issue of “maverick” purchasing is still prevalent.
So, of critical importance, is to negotiate and draft contracts with the delivery stage in mind, so that contract documents become more useful in the ongoing management of relationships. To be successful you must then be able to manage compliance to those documents, ensuring that the value inherent in contracts is realised throughout the term of the agreement.
Contract Life-cycle Management tools such as Open Windows contracts manage a contract from inception, through souring and award, to on-going compliance, document, and renewal management.
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