Excessive Costs Are Associated with Contract Management - Essay Example

4. Do you know what dates your contracts expire or need to be renewed? YES
5. Do you have a mistake-proof system to alert management of important contract dates? YES
6. Are you taking advantage of all rebates/discounts possible in your supplier contracts? YES
7. Is there a formal approval process all contracts must go through before being executed? YES
8. Can you guarantee regulatory compliance with your corporate contracts? NO
9. Do all of your contracts conform to standard requirements in terms, of approvals, and company policies? YES
10. Do you know immediately if (when) a contract term has been achieved or violated? NO

11. Are your financial systems updated when a contractual risk event occurs? NO
12. Are you certain that you are not losing any money due to cost leakages in your procurement contracts or revenue leakages in your sales contracts? NO
13. Do you know how many contracts have cost penalties or potential legal liability and exposure to your organization? NO
14. Can you routinely and efficiently compare and analyze the performance and terms of various contracts? YES
15. Can you analyze and report on your contracts by the vendor (customer) and by-product? YES

16. Do you have evergreen contracts that renew before you have a chance to cancel or renegotiate? YES
17. Are you paying unnecessary annual software maintenance fees? YES
18. Do you suspect your suppliers are overcharging you? YES
19. Are you paying penalty fees due to late or missed payments to suppliers? YES
20. Are you missing opportunities to take advantage of volume discounts from suppliers? YES. How do you use your contracts as a part of your strategic sourcing analysis? We select the best suppliers through supplier analysis.

21. Have you neglected to conduct an audit to evaluate your contracts and accounts payable processes for both cost and risk performance? YES
22. Is your contract development process outdated? NO. Is it a critical path item for sourcing? NO
From the above interview with my client, the responses given indicate that there is a likelihood that the business will derive various benefits from the automated ECM/SLM system. The units of local businesses are not taking advantage of the negotiated contracts at the national, regional, or global levels. The contract process takes much time as audits are rarely conducted with time and resource intensiveness. There is also a poor life cycle and workflow in the visibility of the contract. In the contract processes and procedures, there are no guidelines or templates that are proven for particular terms and clauses needed for different types and values of dollars in the contract. There is also an inadequate and insufficient reporting system for the senior management. Finally, there are high costs of staff that are incurred in the routinely carried out review or administrative tasks.

Excessive costs are associated with contract management
Contract management is responsible for the excessive costs due to lack of the expiring contract dates that result in low rates of contract renewal. Insufficient performance monitoring and terms of contract lead to late fees, overpayment, failure to collect discounts or rebates, and penalties. However, this inefficient monitoring may lead to failure in collecting late fees, underpayment, and awarding unearned rebates and discounts on the part of suppliers.

Contracts involve high risk due to a lack of compliance
There are high risks involved in the contract resulting from noncompliance. This is due to the lack of policies documented and the incapability to show adherence to the written policies related to the contract. The company is also unable to determine if the supplier is complying with the contract terms and conditions. The contract risks also result from inadequate controls of ensuring that those writing contracts possess appropriate legal and risk management and/ or another appropriate mode of authorization before making changes to the terms and language of the contract. The contract risks are also associated with a lack of automated reconciliation and integration with the financial systems. This may be due to the company’s inability to rapidly and routinely identify high-risk clauses in the contract. In addition, the organization has no monitoring and reporting tools for contract performance. Read More