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How Standardization Can Improve Contract Management

standarization photoCan you think of a time when you said to yourself, “there’s got to be a better way to do this?” I know I can. We’re always looking for ways to make our business practices and our lives more efficient. Standardization provides an answer. It can help increase productivity and efficiency by defining expectations, formalizing processes, and creating accountability.

In government contracting – crafting, administering and managing contracts – standardization can be implemented through contract management systems and technologies, standardized contract language, templates, best practices, conducting and applying lessons learned studies, deliverable acceptance and receipts, invoice reviews, etc… Doing so can yield positive, measurable results with effectiveness and efficiency.

At the National Contract Management Association (NCMA) 2015 World Congress, I will lead a presentation on driving efficiency through flexible standardization in contract management. In this first of a two-part series, I’ll look at how standardization and innovation can work together, as well as at the benefits and myths of standardization in contract management. In Part Two, I’ll discuss why it’s still important to be flexible and what to do before, during, and after the implementation of a standardization solution.

Innovation and Standardization Go Hand-in-Hand

Often there is concern that standardization limits innovation, but this is not so. They can and must co-exist for companies to meet their business/mission objectives. Ideally, an organization’s contract management function should be a cohesive process within an enterprise-wide environment that recognizes and seeks innovation, and produces efficiencies in processes and other outputs that meet the business/mission needs throughout the contract lifecycle.

Industry has always fueled innovation to improve operations, efficiency, and service delivery. Standardization and innovation must go hand-in-hand. Standardization does not reduce creativity, innovation, or individual-decision making; I’d argue that it enhances these actions by allowing more time to focus on business strategies, planning, and forecasting.

Benefits of Standardization in Contract Management

There are several benefits to introducing strategic standardization to contracting and contract management processes:

  • It increases productivity and efficiency: One of the main objectives of standardization is to streamline and centralize processes and procedures. Less time needs to be spent figuring out how to do things, leaving you with more time in the day to actually do the work.
  • It ensures uniform quality: Contract management systems typically include contract templates and checklists. Using these tools makes it easy to be sure that you’ve included all of the essential components of a contract, and have met or exceeded a standard quality of output.
  • It aligns with DoD’s BBP: If you support the Department of Defense, you are familiar with Better Buying Power – “a mandate to Do More without More.” One thing BBP focuses on is “[achieving] greater efficiencies through…elimination of unproductive processes and bureaucracy.” Standardization of processes achieves these same results.
  • It has tremendous returns: Contract management can be expensive: Goldman Sachs estimated that companies spend almost 5% of their revenue to track agreements after signing a contract. Pricewaterhouse Coopers has found that 12% of a company’s total annual costs may be devoted to contract management and administrative tasks. Significant chunks of revenue are already spent on managing contracts without standardization. In 2001, Goldman Sachs reported that companies using contract management software could reduce annual contract management expenses by 20 to 50 percent. A more recent article on contract management automation in the healthcare industry, calculated that organizations could see savings equal to 2% of total annual costs. To demonstrate, “…a hospital spending $30 million could save $600,000 annually with an effective contract management system.” With a contract management solution, you will see returns on your investment.

Myths about Standardization

The following are some of the most common misconceptions about contract management standardization:

  • It limits innovation: Many worry that standardization prevents innovation, but as stated above, the opposite is actually true. Standardization reduces the amount of time that needs to be spent on writing and maintaining contracts, leaving more time for planning and strategizing.
  • Only expensive solutions have benefits: Even if your organization does not have the need for a sophisticated solution, you can benefit from automating some aspects of the contract management process. Automation can allow you to easily track obligations and dates, or ensure that you are compliant with requirements and regulations.
  • It takes jobs away: Though standardization increases efficiency, it does not necessarily mean the elimination of jobs. Instead, I have seen that some people are retrained and repurposed, while others are able to focus more on other areas of their jobs.
  • It takes a long time to see returns: Not only will you see returns on standardization, but you will also see them quickly. In fact, it’s been reported that most companies are able to see ROI on contract management solutions within the first quarter of implementation.

Contract management standardization can save your organization time and money, and improve the quality of your work. In Part 2 next Monday, I’ll discuss the importance of maintaining flexibility even as you standardize processes, and I’ll provide tips on how to implement standardization in your contract management routines.