More than nine in 10 organisations (92%) are trying to transform contract handling but face “significant obstacles”, a survey has found.
The survey, conducted by EY Law and the Harvard Law School Center, found more than half (57%) of businesses had seen slower revenue and 50% had missed out on business as a result of contract inefficiencies.
The survey involved 1,000 contracting professionals from law departments, procurement, commercial contracting, and business development functions around the globe.
Almost all organisations (98%) said they faced critical barriers in transforming contract management, while 38% said they had already tried and failed to do so.
John Knox, EY global legal managed services leader, said: “The importance of getting contracting right cannot be underestimated.
“For many organisations it is something of an Achilles heel, but with the right transformation efforts focused around people, process and technology, contracting can actually become a business enabler and differentiator.”
David Wilkins, professor at Harvard Law School, added: “Contracts are at the core of every business. They determine how growth happens and how risks are managed.
“It is therefore absolutely crucial that organisations have effective systems and processes to manage every aspect of the contracting process, from negotiation and execution, to termination or renewal, as well as an accurate understanding of the obligations, benefits, and risks across the entire spectrum of their contracts.
“Yet as the survey underscores, the fact that so many functions have an interest in, or responsibility, for contracting makes it difficult for most companies to manage their contracts effectively.
“As we enter a period of accelerated growth and risk, business leaders must find new ways to balance these internal interests and manage their contracting functions for the future.”
The four main barriers to transforming contract management are:
1. Cost-cutting pressures
Cost cutting is one of the main drivers for change for contracting professionals, the survey found. Almost all (99%) organisations plan to reduce the cost of contracting over the next two years.
The scale of these cost reductions is also significant, with one in three larger organisations “looking to reduce contracting costs by 30% or more”.
2. Lack of clarity around decision-making
Despite widespread agreement on the need for change, many of those surveyed said there was confusion about where responsibility for managing contracts actually sits, complicating the contracting process and transformation efforts.
“Fifty-nine percent of legal departments believe they play the leading role, while a similar proportion (56%) of contracting staff believe they are responsible. Meanwhile, 39% of business development professionals think they are the decision-makers,” the survey said.
3. The technology gap
Around 70% of organisations have a formal contracting technology strategy in place, but almost all (99%) said they do not have the data and technology needed to optimise the contracting process.
“There is a gap between strategy and execution and many organisations face increased risk because they are unable to measure, manage and control adherence to their policy,” the study found.
Organisations are also struggling with how to put technology in place. Almost half (47%) said implementation was a major challenge and around 34% said they were finding it hard to recruit people with the skills needed to identify and implement the technology they need.
4. Weak contracting processes
The survey revealed a gap in processes for managing contracts, as 69% of organisations do not require staff to use a template when drafting contracts, and the same percentage do not demand adherence to any rules or guidance.
“Nearly half (49%) say they lack a defined process for storing contracts after execution and almost eight in 10 (78%) say they do not systematically monitor contractual obligations. In addition, almost three-quarters (71%) of contracts are not monitored for deviations from standard terms,” it added.
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