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How to stop making costly IT contract mistakes

Sarah K. White | July 26, 2016
Poor IT contract management can cost your business time, money and legal fees. Here’s how to minimize risk by focusing on restructuring contract management and training employees around compliance.

Managing IT contracts is sensitive business. Typically, corporate relationships and large sums of money are on the line. One Western Australian public servant recently learned the pitfalls of poor contract management the hard way. The employee overspent $40 million dollars on an IT contract in the healthcare industry. Similarly, Serco, a private security firm, found itself on the receiving end of over $68 million dollars in fines as a result of contract errors. And NHS Partners, a clinical services provider, found themselves out $1.2 billion dollars due to poor contract management.

As those examples reinforce, the effects of mismanaged contracts adds up from legal fees and costing businesses large sums of money that they don't need to lose. Russ Edelman, CEO of Corridor Company, a company dedicated to contract management technology, says he's seen a trend where businesses find themselves far behind in modernizing the contract process, but he notes that it's a fixable problem with the right technology, budgets and staffing. It's not only about upgrading the systems and process you have in place, but also ensuring all your employees are invested in proper contract management and understand the implications.

The big three

Edelman points to three common trends he sees in mismanaged contracts, the first being an overall lack of trust along with "disconnected and disparate systems used to house contracts." Typically, he will find that contracts are stored in multiple locations -- both digital and physical -- with a lack of consistency.

Next, he often finds inconsistencies in contract templates as well as the approval process they go through. Companies can switch over to automated templates to help ensure that the proper wording, language and legal terms are used consistently throughout every contractual agreement. Some businesses might even hire people who focus solely on automating and standardizing contracts throughout the business, allowing for flexibility when needed.

Finally, Edelman says he frequently runs into scenarios where businesses don't have a firm handle on the compliance laws around contract management. Educating your employees on the legal implications of contract verbiage and terms will be an important step to avoid future contract mishaps.

Defining contract management

Rachel Carrell, current CEO of Koru Kids Ltd., was once the CEO of a startup that quickly grew to house a 30-person tech team, with around half of the team outsourced. While she noticed that early on, the process for managing IT contracts worked pretty well, as the business grew, it became more difficult to appropriately manage, especially with outsourced employees. "We had to really take a step back and think, how do we communicate with our outsourced team? Do they understand our real priorities? Do they know why they're being asked to do the work they're doing? When our priorities change, or we learn new information, are we bringing them along with us? And we realized we had a lot of work to do in improving the way we managed this contract," she says.


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