IT Contract Management: How to Sort Through the Risks
So a New Year has started and most everyone has sorted through, or at least triaged the emails and voicemails from over the year-end break. Most companies generally see two things at year-end: (1) a decrease in overall email traffic, but (2) a higher criticality hit rate in those communications.
The first one is easy to explain as a large portion of the western world uniformly takes vacation time around then. The second is generally due to a number of factors:
- Vendors pushing for the year-end deal to get the bookings;
- pressure to close a purchase in order to get it accounted for in the correct budget cycle; and
- projects that have been languishing for months take a new priority when year-end performance evaluations are coming up.
Do You Know the Risks?
Buried in the frenetic efforts to “get it closed by year end” are a number of risks, curiosities and mistakes that affect every contract lifecycle management regime no matter how mature. This is because no matter how disciplined, clear or “locked” a system or process is, we must never underestimate the power and creativity human beings can exhibit when their personal KPIs are on the line.
Here are some frequent challenges and solutions.
Challenge 1: Rogue Contracts
The best way to get around a set of signoffs, process steps or control points is to avoid them completely and make the “one-time” exception. Now, most professionals exercise good judgment and the contracts would have received the correct approvals if not for lack of time or availability of approvers. But a fair portion of these contracts may not meet the correct standards or the standards may not have found their way into the document, invoice or service management systems. This can lead to lack of tracking, poor control, bad data, etc.
Solution 1: Contract Amnesty
January is an ideal time to have everyone get his or her contracts into the correct system on an open door policy. Even a bad contract is better off being tracked and then potentially treated and fixed. To keep it out of the system is like ignoring that you may have broken your foot and just seeing if it will fix itself. Spoiler alert: it won’t.
Challenge 2: Non-Conforming Terms
Assuming you can get all of the contracts into the correct systems, you are likely to find a few that don’t match standards. Some of these oddities can be for legit business reasons. Others could be a side effect of limited time, improper review, or one party of the negotiation using peer pressure and asking for the favor to “just sign it now or suffer a potential consequence.”
Solution 2: Change Order
Everyone knows that the year-end causes deals to be cut, promises to be made, and sometimes mistakes to be made. Once January rolls around it is best and healthy for any vendor-customer relationship to come clean on questionable terms. And when protocol skirting is revealed, the party who “did the favor” should go back to the other side and inform them that standards need to be met and certain changes to need to be made in order to comply with the level of risk the company prefers to take. These can be simple things like payment terms dates, reviews, reports that are required, etc. Very rarely would it require one side or the other to kill the deal.
So in short, the year end forces a lot of deals to close, but a portion of those don’t always follow the rules. Rather than ignoring this fact of human nature, I suggest to clients that they use January (or substitute whatever month comes after your fiscal year-end) as a month of amnesty. Get the contracts in, check them for correctness and fix what you can.