Turf Wars: Who Owns the Contract?
So little is written about the relationship Procurement has with Legal! With contracts vital to our function, is it possible to have a frictionless relationship?
Although we often seem deferential, we Procurement professionals are somewhat obsessed with our relationships with our peers (A.K.A. stakeholders). We’re somewhat preoccupied (to say the least!) with how to engage, manage and influence them. Perhaps our relationship with Finance has been our primary pastime. “How to talk to Finance;” “Understanding Finance-ese;” “How to engage Finance.” Similarly, there’s been a lot to say about Sales versus Procurement.
But what of the relationship between Procurement and Legal? We rarely see this relationship under the microscope, but Legal is part of our daily lives. Lawyers may come in many different shapes and sizes, but ultimately their goal is the same: to produce a workable contract between our organisation and our suppliers.
Contract management plays a vital role in helping Procurement teams better respond to disruption. As the development of contracts – and our relationship with Legal – evolves post-pandemic, how can we iron out the bumps?
A fraction too much friction?
“The most common conflict I hear is contract negotiation is conducted in silos,” says Madeline Paris, Director of Enterprise Technology Support at Covenant Logistics Group. “The legal team is brought in at the end of the process. At that point they will either hold up procurement when it could be an urgent or time-sensitive need, or the legal team has to make concessions and not perform their normal contract negotiation process.”
Since Procurement is so heavily regulated, she recommends bringing in Legal early on, “to avoid any risk in the future.” At this point, it helps to introduce IT as well, to ensure technical solutions will easily integrate with the product.
Madeline explains how especially frustrating it was in her experience “not knowing the state or status of my contract … or who physically had the contract. Often contracts would get lost and you had to start the process all over again.” In her case, it was difficult keeping up with who the legal resource assigned to her department was at any given time, owing to frequent turnovers or attrition.
And I want it now!
In February and March 2020, a common problem sprang up around contracts that desperately needed a solution. Businesses suddenly found they were unable to maintain operations and fulfil existing contractual obligations. Thus, the Force Majeure provision sprang to prominence (excusing a party’s performance where extraordinary events meant they can’t deliver the goods).
C-suite executives suddenly needed to know precisely what rights and options they had to terminate contracts or cancel obligations. This information could have been easily accessed … if they knew where their contracts were! Many frantic phone calls and conversations ensued. Clearance levels and authorisation asserted themselves.
Overnight, Contract Lifecycle Management (CLM) went from a “nice-to-have” to a critical business function. However, CLM solutions couldn’t just parachute in, explains Danielle Haugland, Global Alliance Director at Agiloft. “A CLM solution has to interact with the tools typically used in these functions to share data, so a focus on ease of integrations was critical.” Moreover, change management proved extremely difficult with people working remotely.
Whose contract is it anyway?
“One of the biggest questions Legal and Procurement have to grapple with is who owns the contract?’” says Danielle. “Some say legal should own all of the terms; others say the business should own the commercial terms and legal owns the legal terms.”
But it doesn’t have to be an either or. “There is a way for Legal to reduce the time spent supporting Procurement, while also increasing the value and impact of that time they’re spending,” she continues. “This is where setting up a robust self-service model can be key in driving efficiencies, removing bottlenecks, and maintaining a healthy contract portfolio.”
Setting up a robust self-service model can be key in driving efficiencies, removing bottlenecks, and maintaining a healthy contract portfolio.
In setting up the solution, identify contracts for what they are: data that drives every business function, from HR to finance, to supply chain, to sales. From this neutral standpoint, Danielle suggests Procurement and Legal working together to develop a dynamic clause library and auto-populated template. Business users can then generate a self-service contract and only deal with Legal when needed, based on pre-defined rules and risk scoring.
A frictionless future
Even with inter-departmental friction eased, another perennial problem exists: different users using different systems. “When I think about frictionless contracts, I think making it as easy as possible to create contracts and capture contract data,” says Danielle.
A key feature of Agiloft’s solution was to embed CLM functions into the tools in which users are already fluent: Microsoft Word and Outlook, Salesforce and Dynamics for example. “Embedding contracting functions into these tools reduces overall transaction costs because I am not toggling back and forth between systems. It’s done automatically or, dare I say, frictionlessly.”
Madeline emphasises further benefits: “When all parties use the CLM, it centralises the Procurement and Legal teams. This centralised ‘unit’ can then support multiple locations seamlessly.” It also solves geographical issues. “Digitising our contracts and other records associated with contracts like billing and credit files made all these documents accessible to our workforce regardless where their office is located. Not to mention all the real estate we got back by eliminating literally hundreds of filing cabinets!”
In the future, Procurement will remain a very highly-regulated industry. “We can hopefully extract the regulatory data from the agreements and embed them in our financial and risk management systems,” says Madeline.
However, technology will hardly accelerate contracting and produce actionable insights unless it integrates easily. “Without the ability to integrate systems, it’s much more difficult to automate manual processes,” explains Danielle, “especially for contract management. Integrations into CLM allow legal, finance, procurement and the sales teams work together as a single cohesive unit, rather than as siloed departments.”
“Both of these attributes, automation and collaboration, enable the concept of frictionless contracts” she adds. And thanks to Agiloft, it’s a frictionless future we will all no doubt herald!
Find out more about Agiloft and hear first-hand from Danielle and Madeline about the future of contracts in our exclusive webcast: register now!
