3 Steps to secure procurement has greater visibility and management control over contracts with vendors

How to create self-serve contracting for procurement, without putting the company at any kind of legal risk.

Today, I’m going to share with you how a procurement department can accelerate its contracting cycle time and become self-service using tech.

The contract is really a technicality to codify the relationship with the other side, so there’s a tremendous amount of organizational benefit in focusing on buy-side contracting.

The problem is that procurement has viewed the legal department as a deal prevention department, and the law department has seen procurement as fast and loose. Neither of those extremes is true, but the truth lies somewhere in the middle.

Procurement is a hotbed of contract management opportunities for efficiency gains, spending optimization, and becoming better managers.

Here are 3 steps that any organization can take to create a self-serve contracting for procurement departments:

  1. Start with the basics: central repository, workflows, and standard templates.
  2. Standardize and harmonize contract templates using playbooks.
  3. Begin negotiations with reasonable terms.

How can a CLM alleviate the tension between procurement and legal

It is important to understand that there’s often tension between the procurement and legal departments. What a CLM system does is allow that tension to be processed so that there are more management controls and less emotion in the process.

There may not be a CLM initiative in the law department, but a lot of procurement organizations use purchased-based systems, and these systems oftentimes have contract management modules.

#1 Start with the basics: central repository and workflows

Procurement may start using a simple repository or run RFPs with the counterparties, facilitating the process and storing information around the vendor.

Then, procurement may need a system structured in a fashion that there are certain categories of contracts that can be dealt with in a very specific workflow.

Repositories also need the flexibility to store parent-child hierarchies, so you can get a master services agreement and all the child agreements together in one place.

#2 Standardize and harmonize contract templates using playbooks

Some procurement teams are setting up things that they’re calling global contracting centers of excellence focusing on how they can standardize and harmonize their contract template and reduce them from 10 down to just a pair.

Instead of having so many duplicate templates, members of this centers focus on creating playbooks that represent actual points of view from different provisions so that when a third-party contract comes in, we can review it and know:

  1. Where does that language deviate from our preferred positions, and
  2. Where their language missing absolutely needs to exist.

Those playbooks are something that typically a law department would drive to allow things like self-serve contracting. To be able to push contracting out from a lot of departments and say:

“If you follow this playbook (people outside of the law department), you can take these three alternate provisions, these fallback provisions, and use those in this descending order of risk. When you go beyond that, pull the ripcord, and call us.

Everything else, you can do yourself.”

We’re finding that procurement organizations are focusing on having decision trees based on an intake protocol and knowing which template you should select. The system can automatically team that up when somebody fills out a proper intake form.

#3 Begin negotiations with reasonable terms

How do we get this deal done faster, get multiple stakeholders involved, and how consistently facilitate it such that legal has a high degree of confidence that will get them involved at the right time of a negotiation?

Requirements functionality goes beyond repository to what’s the workflow, how you have multiple groups involved, have an approval workflow that can go to multiple departments, and provide their point of view, approval thresholds, etc.

In 75% or 80% of the cases, the buy side ends up having the same 7 to 10 provisions negotiated every time, and they end up at the same ending point.

If that’s the case, you can work that ending point language into your starting point template, you might not have to negotiate those provisions in the first place.

Conclusion: Greater visibility and management control over your commercial relationships

During a negotiation process, the deviation of those provisions can be evaluated within risk thresholds, providing alternatives so that the person in procurement can say:

I have term languages alternatives or fallback provisions that are blessed by the law department, and I can insert these with confidence knowing that I’m not putting the company at any kind of legal risk.”

That doesn’t take away individual judgment. All it does is facilitate individuals to use their judgment in a more rational way with actual data and analysis, backing it up so it gives everybody a higher degree of confidence.

CLM Implementation Services

At RDF we understand the hardest part of a CLM project isn’t finding the perfect solution – it’s implementing that solution to fit your company’s exact needs and processes. 

That’s why you need a partner who’s not only done it before but can suggest best practices to drive user adoption and ROI.  

Schedule a consultation call

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