Most legal groups maintain all contracts yet the process for procurement to know about contracts that are expiring remains a problem in most organizations. The processes within legal groups might be totally manual or at best, maintained in some type of database used to house all of the contracts. Some employees at companies do not even use the company’s legal group as a resource therefore, the legal group does not even have copies of those contracts.
With a contract database, many of these processes become better defined and allow an easier way for all employees to use a standardized to process to get a contract started. With these type of processes, the legal group benefits because now they will see more contracts with a contracts software tool than they otherwise would have had visibility. The ROI for such a software tool can be easily made simply in the missed opportunities calculation.
For example, assume the legal group is late delivering the information about a contract that the window of opportunity, say 180 days prior to expiration, has already passed. With the window closed, the contract auto-renews for another three years and procurement has zero chance to save any money on the $1 million of spend for another three years. Assume procurement’s average savings is 5% savings. If this average was applied to the late notice on this one agreement, then procurement would have saved $50,000 per year times three years or $150,000 in total value lost with the current processes. Because most contract tools cost less than $150k, the ROI can be justified by not missing any more opportunities to get out in front of an agreement and not being late.
New processes with new contract software can correct these problems and add value to the bottom line sooner. Bryan Eaves, CPA, C.P.M.