How Mickey Mouse Contract Management Can Cost You Money

Picture this. The year is 1939, the place is sunny California. Bill Hewlett and Dave Packard formalise their partnership in a garage that Bill and Dave used to develop prototype products. The first successful product they sold was an audio oscillator, bought by Walt Disney for the movie theatre surround sound systems that they had designed for the film ‘Fantasia’ – the Fantasound surround sound. That garage has since been declared “The Birthplace of Silicon Valley”.

No doubt the contract agreed between the fledgling technology company, and the increasingly popular animation studio was written up on paper and finalised with a ‘wet ink’ signature from both parties. And the surprising thing is that fast forward over 75 years, and many companies are still managing their contracts in a similar Mickey Mouse operation kind of way! Why is this when we have the technology to do things differently?

‘Smart’ Contracts

Contracts are typically complex documents and require much revisiting and renegotiation. Rarely drawn up by a single person, you will usually find that a number of different people within an organisation will have input and will need to collaborate from a sales, procurement or legal point of view. This leads to a huge number of different versions that can be created, edited and re-sent until a final version is agreed. The majority of contracts these days of course will be created in Microsoft Word but I’m often astounded at the number of people who will still print out paper copies, declaring that they need a ‘wet’ signature on the documents.

This is, however, a complete myth. The Electronic Communications Act 2000 which came into force in the UK in July 2000, allows contracts to be concluded by electronic means.

It provides for the admissibility of electronic signatures in legal proceedings where the authenticity or integrity of that electronic communication is in question (Section 7(1)) which, simply put, means that a person can validly ‘sign’ a document without the need for a ‘wet ink’ signature.

This may make you feel slightly anxious, but realistically when was the last time you agreed to your updated iTunes Terms and Conditions with a pen? I’m guessing the answer is ‘Never’; but are you bothered about this? Again, probably not.

Approval Process

A typically poor contract management process looks like this. The document is created in Word, routed round the organisation in Outlook, version controlled in Excel, paper copy printed, signed and filed away, with a finalised electronic version being stored on a shared drive somewhere, along with a scanned final version, and finally, back to Outlook to store a reminder as to when the contract is up for renewal.

While no doubt this works most of the time, it’s inefficient, time consuming and simply not necessary, because, quite simply, we have the technology to work in a much smarter way. So why don’t we use it? Just because “that’s the way things have been done for years”, it doesn’t mean that a better way shouldn’t be pursued.

Goldman Sachs have done some research in 2001 (in a report called ‘Time To Manage Those Contracts!’) and found that with an Electronic Contract Management Solution, the cost of processing a contract can be reduced by as much as 30%, the negotiation cycle can be shortened by half, and erroneous payments reduced by up to 90%.

And a good contract management solution doesn’t have to be complicated, or require a huge upset to the current process. It should be an out of the box solution that can be managed and configured by the very people in the business who are responsible for contract management. Let’s be smart and use one application for one purpose!

Since that day in 1939, HP have gone on to become one of the largest IT companies in the world now focusing on cloud solutions, security and big data. I bet they don’t manage their contracts in Excel anymore.

George Haddaway, New Business Development Manager, EASY Software UK

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