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Zombies and Ghosts: The Monsters in Your Contracts

Posted by David Wadler on Feb 21, 2018 10:52:50 AM
Image from Pixar's Monsters, Inc.

I don’t know whether the concept of “the monster in the closet” is universal, but among my elementary school peers, it certainly seemed that way. Now, as a parent to two elementary school children, I've noticed that the closet monster continues to work dutifully, waving away any talk of retirement. Each night, before bed, my daughter walks over to the closet and presses it shut. She even does this when the closet isn’t open. Around the world, there are thousands — perhaps millions — of children who adhere to the same routine. And for what? To the extent these monsters are real, they are actually quite adorable...or at least that’s what Monsters, Inc. would have us believe. We really have nothing to fear from closet monsters.

While we confidently assert that our children’s fears about things that go bump in the night are misplaced, we would benefit from being more mindful of the contract monsters that are real and who regularly claw away at the performance metrics of our businesses. Lest you think that your organization is immune due to its size, be warned that zombies and ghosts lurk irrespective of how many people there are fighting back.

Indeed, companies both large and small can be — for different reasons — haunted by these creatures. But hiding under the covers with a flashlight will do nothing to help you. And the cloves of garlic ringing your neck will simply make you socially unpopular. What does help? Simple tools coupled with repeatable processes.

It is important, when putting together a plan of action, to know your enemy. Let’s learn a bit more about them.

Contract Ghosts

What happens when a contract reaches the end of its term? In many cases, an account representative or member of the customer success team from the counterparty will reach out to assess your interest. But relying on a third party to ensure continuity is a risky proposition. When a contract reaches the end of its life and you’re aware of it, you can manage the expiration process. Perhaps you want to renew. Maybe you’ve gotten what you needed and can let the contract drift peacefully into the hereafter.

However, when you lose track of your contract and its time comes to a sudden and lonely end, it can wreak havoc from the afterlife. “One day, this online service we were offering just went down and we couldn’t figure out what happened,” says SYNQ CTO, Bruce Wang, about a situation he managed in a previous job. “I was new to the role and still getting ramped up on all the moving parts, but we had a team of people scrambling to find out what went wrong so we could fix it.” Bruce’s team identified the problem: There were some servers that were suddenly inaccessible. Despite initial concerns that there was an issue with power or routing, it turned out that this was not a failure of technology, but rather a failure of process. The reason that the servers were inaccessible, Bruce explains, is that “someone had forgotten to renew the contract.”

Contract Zombies

There are people who are obsessed with the idea of immortality. Some believe it will come by developing replacement parts for the human body. Others believe that consciousness and computing will merge in “The Singularity.” Most of what I know about life extension comes from the movies: the undead relentlessly pursuing the living hoping to sate an incomprehensible hunger for brains!

Though we can (hopefully) dismiss this as science fiction, many of us suffer at the hands of undead contracts. As with many zombie movies, our protagonists are well intentioned. Seeking to rid the world of contract ghosts, some innovators developed the auto-renewing contract. Every time it expires, it simply comes back to life. If you’re thinking that this would have saved Bruce and his team a lot of time and effort, you’re right. But as with just about everything else in life, there are unintended consequences.

The fundamental issue underlying both of these contract monsters is that we simply lose track of them. While we’re negotiating them and executing them, they are at the top of our priority list. Once signed, they drift away from our consciousness. When this happens with an auto-renewing contract, you might pay indefinitely for something that you no longer using. An account rep once told me the story of a decade-long auto-renewing contract that he inherited. It was with one of the largest companies in the world and generated around one million dollars per year. While the account rep’s manager was eager to expand the contract, the rep explained that the best thing to do was leave it alone. Apparently, the buyer had completely lost track of the contract and was unaware that money was still being spent. The product — or service, in this case — wasn’t even being used.

Fortunately, you don’t need shotguns and chainsaws to fight off contract zombies. (And odds are, you won’t sort out your plan of action while trapped inside a mall.) Having said that, you do need to be proactive in figuring out how to protect yourself.

The Common Thread: Lack of Administration

Contracts administration is baked into many Enterprise Resource Planning (ERP) tools, which might make you wonder why contract monsters are so prevalent. The problem is that smaller organizations are challenged to justify the potential cost and complexity of an ERP system. On the other hand, larger organizations have process complexity and areas of specialization, which could lead to a breakdown of protocol.

Interestingly, organizations both large and small often handle their contracts administration the same way — on their desktops. In some forward-thinking organizations, the desktop might be a cloud storage application, but that doesn’t alter the underlying problem. Contracts are siloed and disconnected from their key contextual components, e.g. price, term, renewal provisions, etc.

If you have the tools, requiring that employees follow a process is a great first step. But let’s be honest with ourselves: If you are increasing the burden on an employee to do something that falls outside his/her core responsibilities, how strictly do you think he/she will adhere to the policy? The adherence rate will fall as the complexity of the tools increases, which is a particular challenge for organizations that are relying on their ERPs for contracts administration. And if you don’t have an ERP….

Who Ya Gonna Call?

Not the Ghostbusters. For one, they are fictional characters. But even if they were real, they hardly seem the type to offer advice on how to set up business processes. The good news is that there are some pretty straightforward approaches to doing this in the real world. At a minimum, you should be able to leverage cloud storage and a spreadsheet. In your cloud storage environment, you would create a folder that holds the contracts and give it an intuitive name. Then, you would go into the spreadsheet and enter the following information: key stakeholders, start date, end date, renewal type, and notification date. (You are, of course, welcome to add to this.) Every time you do this, it’s important to sort the list by notification date so the contracts that are nearest to needing attention are at the top. Once you have the data, make sure you do regular reviews of the spreadsheet to ensure you’re not letting an important date slip by.

While serviceable, the above setup is certainly not ideal. Fortunately, there are tools out there that can simplify and automate the contracts administration process. If you find yourself evaluating tools, here are three important questions to consider:

  • Is it fast and easy to use?
  • Does it capture the data that I want?
  • Are there automated notifications?

Silver bullets are effective on werewolves, but only serve to put holes in paper and destroy computers. Indeed, simplicity and automation are the weapons that work best for contracts administration. We’ve spent an unhealthy amount of time thinking about how to simplify this process so you can sleep well at night. If you’re interested in taking a free test drive, we invite you to sign up.

Topics: contracts