Optimizing VMO Part 5: Contract Administration

This is the last in a five-part series about optimizing VMO for modern IT organizations.

Contracts are the bedrock of good vendor relationships. They provide the basis for collaboration, dispute resolution, payment, and many other critical components of vendor management. This makes developing, managing, and reviewing contracts one of the most important roles of the vendor management office (VMO). In order to optimize VMO and get more from your vendors, it is important to develop effective strategies for contract administration.

Avoiding challenges

In order to optimize your contract management strategy, it is important to first understand potential challenges. Mismanaged contracts can cost a company dearly, and the VMO must stay proactive in order to secure the best agreements for the organization.

Postponing contract renewal preparation – More time means more leverage for contract renewals. Many companies don’t give themselves enough leeway to prepare for RFPs, negotiations, and other aspects of contract renewal because they are disorganized and don’t have a workflow system in place. This can often lead to staying in suboptimal agreements with incumbent providers.

Not regularly reviewing contracts – Contracts should be regularly reviewed to ensure vendors are delivering on promises and that the terms are matched to real business results. By consistently reviewing contracts, companies will be better prepared to get what they need when it’s time for contract renewal.

Incomplete or disorganized documentation – Documentation forms the legal and practical basis for a contract. Companies that don’t keep their documents in readily available and organized forms will have little leverage when vendors renege on their agreements.

Optimizing your contract administration strategy

Create secure contract repository – Accessing, reviewing and referencing contracts should be simple and secure. Many companies store contracts in multiple locations, don’t have access control, and don’t offer a way to view contracts remotely. This creates several problems. First, it is insecure. Contracts could get deleted or leak. It also creates problems when stakeholders need to access the documentation to review contract terms or conduct negotiations with vendors. A centralized repository with access control eliminates these problems and ensures contract documentation is always accessible to those who need it.

Proactively manage contracts – By staying one step ahead, the VMO can gain leverage over vendors and negotiate better agreements. Contract management systems can integrate workflow and help companies anticipate milestones. This makes the process of contract administration more organized, better preparing the company for contract events and renewals.

Tie analytics to contracts – Analytics are critical for ensuring vendors are delivering on their agreements. By implementing metrics that measure the performance of vendors, both in a technical sense and in terms of how well they drive business goals, companies can make sure that their agreements are optimized.

Conclusions

Contract administration is one of the most important functions of the VMO, and companies that don’t implement strong contract management systems and processes will inevitably end up paying more for sub-par service. By integrating organized systems to store and retrieve documentation, measure analytics and proactively manage contract events, the organization will be better prepared to negotiate effectively and meet the needs of the business.

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