Contract Analysis for Procurement Professionals

By Vishal Sunak

Managing vendors is no small task, and procurement professionals are faced with a large quantity of contracts to manage on a regular basis. As a result, organizing the variety of vendor relationships can prove tedious and complex. Often, procurement professionals are working across departments with a combination of one-time, short-term and long-term contracts. How can procurement professionals use contract analysis to simplify this process?

Contract Analysis for Vendor Management

Although many procurement professionals utilize a contract management tool, the manual analysis of the terms within these contracts is time-consuming and complicated. These contracts have a variety of term lengths, financial obligations and other requirements. As a result, traditional contract management tools may not be robust enough to provide the insight required for procurement professionals.

Contract Analysis for Compliance

With regulations like GDPR and the upcoming California Consumer Privacy Act (CCPA), having clear records of the terms within third-party vendor contracts is vital. Any oversight can put a company at risk for large fines. As a result, procurement professionals must consistently analyze the privacy terms within each contract, so that when regulations like these go into effect, they are aware of which contracts need to be amended.

For example, if a vendor agreement allows for the use of consumer data for marketing purposes, it could be in violation of GDPR if the consumer has not provided consent. While companies that don’t have clients in the European Union are safe from violating GDPR for now, when regulations such as the CCPA go into effect, those businesses will have to follow similar practices. For procurement professionals, being ahead of the curve when it comes to compliance is both a time and cost saving approach.

Contract Statistics for Procurement Professionals

During an audit, either by management or an external entity, the ability to quickly produce statistics on the types of vendor contracts is key. Some of the most common contract types include Purchase Orders, Fixed Price and Cost Reimbursable contracts. For each of these contract types, the terms within them affect many other business processes.

While purchase orders are the most common type of procurement contracts, managing these terms is important for budgeting purposes. Since this type of contract acts as an agreement between a buyer and a seller for an exchange of goods, the agreed-upon payment terms must be reflected in reporting. These contracts also protect the seller, to ensure that payment is remitted.

For fixed price contracts, the buyer and vendor agree to a total project cost based on a scope of work. Here, the contract is especially important for the protection of both parties, as the work defined must be completed for payment to be transferred. Should the buyer request something outside of the original scope of work, the seller can update the terms or charge accordingly.

With a cost reimbursable contract, the buyer agrees to reimburse the cost of the materials required for the project after completion. These usually take place if the total cost of the project is unknown or difficult to estimate.

Without proper contract statistics, other departments within a large organization may be affected by unexpected payments or mismanaged cashflow. For procurement professionals, utilizing a contract analysis tool that automates the categorization of vendor contracts is an efficient way to simplify the process.

Proactively managing contracts is a great way for procurement professionals to stay ahead of the curve when it comes to compliance, vendor management and reporting. By using a AI-based contract analysis tool like LinkSquares, procurement teams can alleviate the tedious manual reporting and focus on more important aspects of managing vendors for their organization. To learn more, schedule a demo with the LinkSquares team.

Topics: contract analysis Contract Management procurement vendor management