Procurement Contract Management: Not Just Legal’s Responsibility
Procurement is the driving force behind just about everything you do as an enterprise business. You need materials, services, and supplies to function, and they need to be procured reliably and affordably for your business to thrive. Procurement contract management is a critical part of this process. Well-designed procurement contract management ensures that both the buyer and seller know that their wants and needs will be met every time.
Most procurement contracts involve a series of important interactions between the buyer and the seller, as well as their respective Procurement, Legal, Operations, and Human Resource teams. While these contracts protect both parties, they can often stall progress on time-sensitive projects.
The time it takes to pass documents between teams, convey changes, conduct reviews, and gain approval often eats up valuable time and manpower. One of the most glaring bottlenecks often arises during the legal portion of the contracting process. The nuances of the legality in contracting can make it difficult for legal teams to keep up with the needs of their procurement team.
So, how can you streamline the process in your enterprise business and make sure everyone receives the right contracts on time?
Fortunately, there are several ways to smooth the contracting process for all parties involved. Digital and automated contracting systems can simplify and streamline procurement contract management from start to finish, reducing bottlenecks and keeping everyone on track.
What are procurement contracts?
Contract management is the process of setting legal and business expectations in working relationships between partners, vendors, or customers. Procurement describes the collaboration and negotiation between parties in regard to procuring business-specific obligations such as services, materials, or supplies.
Procurement contracts are agreements that establish legal relationships between two parties. They protect both entities while facilitating the purchase of materials and supplies, establishing sales, making payments, and much more. Essentially, procurement contracts protect the heart of an organization’s interactions with essential parties.
They often pertain to relationships such as:
- Selecting specific products or vendors
- Vetting business partnerships
- Establishing terms and conditions of payments between parties
- Laying the foundation of contracts and product management once the project begins
Procurement contract management is essential, but it can also be time-consuming and complex. Issues in contract management often arise in the collaboration between teams. Whether you’re managing contracts for a small or large-scale enterprise, quality contract management requires attention, effort, and investment from all parties involved—as well as an effective system for communication across multiple teams and businesses.
Though the process can be challenging, taking the time to create quality procurement contracts sets both parties up for a healthy business relationship.
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Why is my procurement contract management process so slow?
The importance of a good contract is clear, but you may still be left wondering why contracts are taking up so much of your team’s time. Whether you’re a buyer or seller, these are some of the most common pain points that may be causing bottlenecks in your process.
The simplest way to more effectively manage your contracts is to start by clearly stating expectations between two parties.
Parameters like materials, terms of delivery, costs, and fees should be spelled out, so that both businesses can provide service that meets the other’s expectations and maximizes the relationship for all involved. Without clear parameters, the contracting process can get bogged down by disagreements down the road.
While automation is the key to efficient contract management, an approach that lacks individual attention and care can leave both parties feeling unsatisfied in your new business relationship.
A quality contract covers the right details to not only set you up for success, but safeguard both parties when unexpected issues arise. Automation should be used to expedite the procurement process—but leaning too heavily on automation can cause its own problems.
When used poorly, automation can lead to missed details and miscommunication. Remember that automation is a great way to support your contracting process, but it’s no substitute for direct communication between parties.
Lack of detail
One of the most common pain points in contract management is a lack of understanding between parties. A great contract should include:
- A well-developed roadmap for sourcing
- Thorough negotiations between both parties on relevant topics
- Detailed and carefully explained project management requirements
- Clearly defined terms for KPIs essential to your business and project
- Specific definitions for key terms in the contract
- Explanations of terms and conditions meant for all relevant stakeholders
- Blueprints for contract management as the project unfolds
When these terms are successfully outlined in the initial procurement contract, both entities will be able to maximize the benefit they receive from the relationship.
Types of procurement contracts
Common types of procurement contracts include:
Fixed price contracts
In a lump-sum or fixed-price contract, both parties will establish the terms surrounding the goods or services being exchanged, including fees and timelines. This type of contract allows both the buyer and vendor to clearly define their role and responsibility. Because of this, fixed-price contracts are very common and easy to manage.
Also known as cost-control contracts, cost-reimbursable contracts require the buyer to cover the costs—both direct and indirect—of the work that is completed. As a result, the vendor will receive a fixed profit. This type of contract is riskier for the seller, who must pay for the cost upfront and only receives profit once it has been made. Because of the higher risk, these contracts are more complex and contain detailed terms surrounding fees and adjustments.
The third type of procurement contract is designed for vendors who wish to be reimbursed for the time and money they have spent on a specific project. This is a popular choice for tech contracts that primarily cover time spent on a given project. These contracts require detailed parameters in regard to extensions, adjustments, and time-tracking.
How to improve procurement contract management
Whether you decide to use a fixed-price contract, cost-reimbursable contract, or time-and-materials contract based on your needs, your Procurement, Legal, and other relevant teams will develop the contract in full. Because ever-changing laws involved in creating the contracts can be the most nuanced and time-consuming part of the process, Legal teams struggle to keep up with the fast-moving pace of the procurement team. However, this essential step cannot be skipped.
How do you speed up the legal process while maintaining the integrity of your contracts?
As procurement is often an ongoing process involving multiple departments, it pays to streamline steps wherever possible. Digital contracting solutions can help improve your procurement process through automation, easy sharing, and instant approval tools. They can help alleviate extra workload for the Legal team while empowering partner teams to self-service contracts, saving time and effort.
If you’re thinking about improving your business’s processes to expedite contract management in procurement, these practical steps can help move you in the right direction.
Advocating for a better system
To generate quality contracts, start by advocating for a better contract system.
Look for a system that’s both powerful and versatile. By incorporating a digital system that can handle multiple types of contracts, you will make the process more efficient across all teams.
Ironclad empowers all of your teams, from Financial to Legal to Procurement. With a comprehensive digital contracting system, you can more effectively collaborate with both your business partners and respective contracting teams to align and streamline the review and approval process. Ironclad offers powerful integrations that enable tracking, approval, and easy monitoring of purchases, relevant information, and important renewals that enhance the procurement process.
Ironclad makes it easy to track spending and approvals across multiple sources, suppliers, and departments. Ironclad unifies the contracting process through the use of a no-code workflow, open integrations with multiple ERP solutions, an intuitive contract data model, and more.
Implementing automated contracting
The contracting process can be further streamlined via automation. Ironclad elevates the digital process with an innovative automated contract workflow. Automation ensures that all contracts and exchanges are consistent by limiting human error. It also makes it easier than ever to audit each interaction and ensures perfect compliance across all your teams.
Ironclad for Procurement maintains accurate metadata on all contract terms and interactions. This digital log provides instant context for all parties involved while fostering trust through transparency and access to information.
With the peace of mind afforded by a digital system, your teams can implement self-service with ease. This makes the process for purchasing, reviewing, and approving more efficient and independent for each team. Self-service can take some of the pressure off the Legal team, freeing up time and manpower for focusing on more important tasks. Over time, this can boost Legal’s productivity and improve the workflow for all.
Adopting a collaborative mindset
One of the cornerstones of a quality contracting system is a collaborative mindset. Digital contracting can help nurture collaboration by lowering the barriers of access to important data and approval tools. To help foster deep collaboration, Ironclad utilizes an ultra-secure company-wide repository that makes it easy for all users to gain important insight into contractual obligation, risk, and more on pending contracts.
Customers can use Ironclad’s data repository to search for contracts using custom filters. In addition, members of each team can quickly review documents without downloading them. This secure and convenient feature allows users to quickly ask and answer questions about discounts, renewals, contract details, and more.
Upgrading to Ironclad
Unlock new levels of teamwork with your business partners and within your own teams with Ironclad’s innovative contracting solutions. To learn more about how Ironclad can help your teams connect and conquer the contracting process, request a demo today.