A Blueprint for Intelligently Updating Procurement Contracts
2020 has been a trial by fire for procurement teams all over the world. Contracting workflows have been stressed to the point of breaking, and flaws of all sizes have been exposed. For some organizations, these process leaks have the potential to entirely shut down buying processes. For others, the dam has already broken.
As teams patch up their procurement workflows, there are a few important questions that all need to be answered at the same time: What has already broken and needs to be fixed? How must new agreements change to meet new needs? What does the future purchasing contract process look like and how do you get there?
The events of 2020 are a huge opportunity to remake agreements to be more buyer-friendly. There is a wide and diverse range of procurement tools to help you on that journey, you just need to develop a plan and assemble the toolkit to help you (a) identify the gaps of the past and (b) fix contracts before you sign them. The best approach combines lessons from the past and present with a vision for the future. Fortunately, the DocuSign Agreement Cloud offers a combination of practical technology and forward-looking strategy to help.
Fixing broken procurement contracts
The first part of correcting buy side contracts is digging into the ghost of procurement past. Look back at what’s happened this year and examine how effective your contracts held up as internal and external operations shifted. It’s likely that you ran into quite a few unexpected scenarios that weren’t covered by language in existing agreements. It's also likely that your business continuity and disaster recovery plans did not sufficiently address reality.
Vendor contracts are particularly problematic when unexpected events happen. In business continuity and disaster recovery (BCDR) scenarios, external teams have to deal with their own organizational shifts and may lose their ability to deliver the services they’ve promised. Internal needs might also change dramatically, which could mean overage fees or additional charges due to unpredicted usage. Procurement teams must liaise between internal and external parties that are facing new challenges.
For example, consider an enterprise business in the U.S. that normally has a small percentage of remote workers utilizing a VPN service to stay connected. As part of that business’s continuity plans during the shift to remote work, all of the employees logged in to the VPN service. Unfortunately, a large part of that service’s customer base did the same thing, causing a network crash. The outage lasted for several hours. It could have been avoided if the procurement team had looked into additional vendors to help load balance during an instance of high global demand. With a more thorough vendor search and more robust force majeure language, the company would have been in better shape to handle increased usage.
For procurement teams that have survived the chaos of 2020, the lesson is clear: it’s imperative to partner with the legal team and agree on contract language to handle unexpected events. Even though most contracts have a small percentage chance of actually acting on that language, it’s important to get it right. Moreover, it’s something that is easily fixed with the right technology.
After looking back and assessing procurement contract workflows, a lot of teams have increased their usage of electronic signature technology. It’s an easy way to solve problems caused by disjointed agreement workflows. DocuSign’s own research in 2020 found that almost all organizations saw an increased need for electronic signature and an incredible 43% of businesses saw at least a 75% increase in documents that need to be signed via electronic signature. eSignature has already helped organizations around the world deal with the shifting business landscape and DocuSign offers tools to help any team take the next steps too.
Intelligent corrections to modern contract problems
For a lot of teams, the biggest need right now is to dig into existing agreements and uncover BCDR provisions in documents that are already finalized. It’s also important to have solid BCDR terms in agreements that are still undergoing negotiation. This is territory that procurement teams need to approach by working together with their legal and IT counterparts. Those teams will need to look for tools and processes that help them understand exactly what is required of their company and vendors during times of crisis/disaster. An important lesson of 2020 is to expect the unexpected, so those teams need to expand the scope of contract provisions and craft language that ensures optimal outcomes.
It’s especially important to focus on vendors that provide technology or data processing solutions. Businesses operate based on this data. If they can’t access it, they’re crippled. Procurement teams need to consider all of the possible ways that usage needs regarding that technology could fluctuate and craft contract language to account for those scenarios. At this stage, it’s important to look back at any holes that 2020 may have exposed in the contracting process and look for ways to maximize agility moving forward. A company that maintains the ability to operate nimbly during a crisis is going to minimize the damage caused by those externalities.
Rather than manually searching through existing agreements to uncover responsibilities during a crisis, DocuSign customers are using Insight to let AI do the heavy lifting. Insight aggregates documents from a range of file types and sources to create a comprehensive shared library of agreements. From there, it uses AI to search those documents and find blind spots, risks and opportunities across a range of common concepts. Combined with a cutting-edge contract management tool like DocuSign CLM, this is a powerful way to ensure that procurement teams are putting their organizations to a position to succeed.
The future of contract analysis
To set up for continued success in future agreements, procurement teams are looking for ways to incorporate AI analysis into the regular agreement process. That means finding a tool to review language for risk areas. Depending on several factors (size, industry, geography, etc.), the appetite for risk may differ from organization to organization, so this will need to be customized to fit each business.
Moving forward, AI should be configured to catch contract issues during negotiation. That means that the legal team won’t need to waste valuable time reviewing procurement contracts and procurement professionals can analyze contract language to get a clear picture of the terms (including opportunity and risk) before they sign. It’s the easiest way to ensure that bad terms don’t end up in an agreement during negotiation.
In the future, procurement teams should have the ability to come to the negotiating table with process-driven and substantive contract data that will help them enhance contract negotiations. Using just an AI analysis tool, procurement teams will be able to make well-informed, data-driven decisions during contract drafting and negotiation in real time. As these teams gain more familiarity with this technology, line-of-business professionals will become more effective at using it to their advantage.
At DocuSign, Analyzer can support procurement teams that want accurate analysis of the content of inbound contracts. It’s a powerful way to use AI to search through those agreements for a range of legal concepts and pinpoint specific sections that pose risks. By design, Analyzer can efficiently leverage the same AI analysis discussed above to find specific contract content (or missing content) that might be problematic and even suggest new language to reduce or remove that risk in the drafting and negotiation process in Word. In the same way that spell check eliminates typos by calling them out directly in the Word interface, Analyzer offers the ability to eliminate contractual risk by calling out the presence or absence of critical language directly in Word. Certainly, there’s a point in the near future where risk analysis technology like Analyzer becomes as ubiquitous and essential as spell check is today.
Despite all the unexpected disruptions in 2020, contracts are still coming up on renewal. As procurement teams enter negotiations on these new agreements, BCDR provisions should be a key point of comparison across vendors. To accurately understand these terms, procurement teams need a tool that will help them identify BCDR risks in external contracts. They also need data-base leverage that they can bring to the negotiating table to make sure they get the best terms possible.
As your procurement team updates procurement contracting processes, the DocuSign Agreement Cloud has the perfect tools for the job.