Understanding Contract Relationship Management 

Global outsourcers and their operating model often lend themselves to a complex structure. Customer relationships are supported with innumerable stakeholders due to involvement of federated global practices. They stitch together multiple teams scattered across delivery locations, an N-tier service delivery models, and disparate pricing models to support commitments under the umbrella of a complex relationship agreement.

In their unending thrust to build the relationship P&L, they end up with the following common pitfalls in the process:

1. Poor hand-over from pre-signature deal teams to post-signature account governance teams

This is “the” pitfall that is core to the problem. This often haunts the supplier organization through the course of the deal. Often, there is limited continuity of members involved in due diligence and deal signatures to the team that manages the deals.

Lack of basic and inadequate transition framework, processes, training sessions, etc., lead to gaps in understanding the intricate legal terms and conditions, contractual commitments, and the interpretive guidelines for understanding the performance and service delivery led terms often non-existent.

As an example, I find leading global suppliers supporting same customer, offering identical services, measured by the same performance metric, using the same tool for measuring raw data, and yet interpreting the service level measurements differently. Or, the members across the teams use varying interpretations while applying the dead-bands and volume bands while calculating the ARC/RRC charges.

2. Weak post-award contract governance knowledge

With global outsourcers having practice-level P&Ls, end up with multiple PMO functions, multiple finance functions, and multiple commercial and contract managers touching the same contract during the term. In absence of structured interpretive guidance and technology to help understand the contractual commitments, the service performance clauses, price books, etc., the governance framework starts developing cracks and leaks.

An illustration of the above may become evident when supplier teams change, and the teams struggle with service level measurements methodology resulting from different interpretations despite using the contract language to calculate service performance. Unfortunately, strategic deal management is no stranger to the attrition puzzle that haunts suppliers. It may take several training sessions of coaching and mentoring of the account teams, delivery organization, PMO, and finance to re-establish the common denominator of contract understanding.

3. Focus on the wrong terms

A deeper analysis points to the problem having started much early in the lifecycle, right at the deal negotiation stage.

It starts early in the bid phase with business counsel and legal teams spending innumerable hours of high cost lawyers negotiating terms that are most often the terms that assist risk containment than relationship growth and win-win scenarios. Not that these terms are any less important but one of the common areas of dispute being interpretations of what is in scope or otherwise. I have found that deep into the terms of the agreement, supplier teams not agreeing to interpretation of service performance and associated credits. The root-cause may lie in the obsession with maintaining gross margins, rather than relationship reviews based on facts and data.

4. Benchmarks for well-informed negotiations

In the endeavour to close deals, suppliers may end up taking unfavourable positions on service performance led clauses and associated credit frameworks, agreeing to stringent credits led milestones against deliverables.

Often this may be a result of the supplier’s inability to track and benchmark own operations with empirical data from like-to-like service engagements, an essential ingredient in deal negotiations to ensure well assessed positions. Hence the need is to consolidate performance data across the deals on common parameters and build internal benchmarks on service performance has never been more important.

5. Zero-technology usage to limiting use of incorrect technology

Using traditional Sourcing Lifecycle Management (SLM) and Contract Lifecycle Management (CLM) solutions to help manage complex strategic account governance and hoping for relationship dividends is like blindly following peer groups without asking if such solutions helped them.

Unfortunately, most CLM solutions fall well short of strategic deal governance ability. Most CLM products have built contract repository solutions and several claim to offer workflow led obligations management. A handful of them help manage contractual performance management and even fewer have solved the puzzle of complex services-led contract price book validation.

These solutions do not have the capabilities to consolidate transaction data across customers into standardized and normalized views and play back organizational benchmarks.

Several customers are also waking up to the fact that such traditional enterprise finance solutions do not help manage the ever-growing pie of services relationships. Neither do these solutions help manage the complex need for supplier performance visibility.

Fortunately, advisory and research organizations are waking up to this category and there is growing research to assist in forming opinions.