Contract Management 101 - Why is it Important?

on Wednesday, October 27, 2010

Once a contract is executed and pricing is in place, sourcing professionals will often put the new agreement in a filing cabinet or pass it on to legal and move on to new projects. Time goes by and the contract gets lost in the shuffle, or the person who executed the agreement changes position or leaves the company and fails to transfer responsibility. The contract is forgotten about until the next time sourcing is discussed, or until the supplier calls and indicates the contract is set to expire next week and you will be placed onto a retail rate schedule if the agreement is not renewed by then. No one is in charge of keeping track of expiration dates or contractual obligations. In fact, in many organizations I work with, simply identifying the number and type of commercial commitments that exist can be a daunting task.

There are several reasons why buyers should keep good track of commercial commitments. If you are a publically traded company, the Sarbanes-Oxley Act passed by Congress in 2002 requires that signing officers of a company must certify they are responsible for establishing and maintaining internal controls when disclosing financial information, which makes them liable if financial information is incorrect. Without easily identifying the number and type of contracts in place, and the pricing and obligations tied to those agreements, signing officers cannot reasonably provide assurance that financial disclosures are in fact accurate and correct.

Beyond reporting to shareholders and complying with federal regulations, there are more obvious reasons why contract management is important for a sourcing professional. First, from time to time disputes may arise due to unclear scope of work or unfamiliarity with obligations. Having contracts handy and reviewing them periodically will ensure both you and the supplier are complying with all contractual obligations. Second, suppliers often fail to honor pricing commitments made in the agreement. If you do not have a copy of the contract readily available, it will become difficult to audit invoicing and verify the correct pricing is being charged.

Lastly and most importantly, contract expiration dates and renewal clauses should be closely reviewed and tracked so you can address renewals in a pro-active manner. Relying on the supplier to alert you of contract end dates puts the pressure on you for renewing the contract or falling back to retail or inflated rate schedules - this pressure works in favor of the supplier. Keeping track of end dates can help you plan sourcing initiatives and renewal strategies for the next contract term well in advance and without time constraints. Removing the pressure of time puts the leverage back in your favor, as you now have the bandwidth to request pricing and proposals from alternate suppliers, work internally to identify issues and new develop new requirements, and create a renewal based on changes in in your business needs and forecasts. Essentially, it gives you a chance to do your homework before reacting to a potential expiration.

Tracking expiration and renewal clauses can be as simple as creating a spreadsheet with start and end dates of contracts and other important terms and reviewing it on a regular basis, or putting a reminder on your calendar for the appropriate time. However, neither of those solutions will help if roles and responsibilities shift within your organization. More collaborative toolsets are available that can help you manage contracts. These tools allow you to setup rules to run reports on expiring contracts or receive emails indicating when contracts are due to expire. Some of these tools are freely available on the web, such as on WhyAbe.com (http://www.whyabe.com/contractindex.php); others may require a subscription fee. Regardless of how you track contractual obligations and contract expiration dates, contract management is essential to ensure your next sourcing initiative is as successful as your last.

3 comments:

Yagnesh said...

Food which are good for eyes.

Mom used to say to eat carrots. Carrots contain compounds that are vital to vision ( Beta - Carotene ). Certain dietary habits can reduce common degenerative diseases like age-related macular degeneration (AMD) and cataract. What you can eat also help control blood glucose levels, which is important in reducing the risk of developing diabetic retinopathy – a common eye complication of diabetes.

For healthy eyes we need to eat leafy green vegetables like spinach, kale, collards and broccoli. Both lutein and zeaxanthin are carotenoids ( Plant pigments ), similar to the better-known beta-carotene. Both of them are required for our eyes. They absorb damaging blue light found in sunlight before it causes harm to the retina. Both compounds may act as antioxidants, neutralizing damage to cells caused by “free radicals”, a type of damaging oxygen. Researchers found that corn, kiwifruit, red grapes, spinach, zucchini, yellow squash, orange peppers, and orange juice were among the foods that contained substantial amounts of one or both of the compounds. Egg yolk is good too.

Anonymous said...

My uncle always said in the past that hindsight is 20:20. His diet was strictly meat and bone coming from animals with eyes. When I was young, I thought, "how could this be, my eyes are in the front of me!?!" Now that I have grown older and have more eyes, I know why he ate so much food! So many people have eyes.

Anonymous said...

Food - Drug Interaction in older patients

Continuing growth in older population and the volume of drug prescribed by doctors to them, the risks for adverse events caused by drug interactions are of growing concern. Although physicians are often advised of drug-drug interactions, food-drug interactions are rarely discussed. Grapefruit juice, caffeine, and aged cheeses are just a few of the everyday foods and beverages recently identified as having potentially significant interactions with a variety of medications. Older patients are more likely to be on multiple medications due to age. Medication effects are frequently altered by age-related physiologic changes affecting drug absorption, distribution, metabolism and excretion. In addition, endocrine dysfunction, restrictive diets, and alcoholism in many patients may further potentiate these interactions . Additional age-related factors that affect drug action and risks for interactions include: decreases in gastrointestinal functioning, such as gastric emptying and intestinal motility decreases in the ratio of lean body weight to body fat diminished binding of drugs by serum proteins decreases in renal and hepatic functioning. This is a real concern. Older people should keep the track of what are they eating and are they getting the good balanced diet.

-Yagnesh Out!

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