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Zycus recognized as a ‘Strong Performer’ in The Forrester Wave™: Contract Lifecycle Management, Q2 2023  Read More

Your Ultimate Guide to Contract Performance Evaluation

Contracts are like hot potatoes – everyone wants to hold them while they’re fresh and hot. From the moment the ink dries, however, they often get tossed aside and forgotten about. This is a glaring mistake because a well-signed contract doesn’t necessarily equal a job well done. Measuring the success of your contracts requires constant vigilance and evaluation, long after the signing phase.

Don’t be fooled by the initial excitement of a new contract; ensuring that the agreed-upon terms are being carried out requires ongoing, well-structured monitoring and assessment. Luckily, with a robust contract performance evaluation plan, you can confidently assess the success of your contracts and optimize future contracts in accordance with your findings. 

Contract performance evaluation is essentially the process of assessing how well all the parties involved have met the contractual terms and obligations. With the help of a robust evaluation plan, a business should be able to:  

  • Ensure that contractual terms and obligations are always met. 
  • Identify areas for improvement. 
  • Align their goals and expectations with that of their contracting partner.  

Regular and systematic evaluation of contractual terms and promises is in fact, critical for successful business relationships. Ultimately ensuring that future contracts are successful, and carried out with preferred partners and vendors. 

In this blog we will dive into what goes into building a successful contract performance evaluation and also elucidate the top 3 risk areas you should be mindful of monitoring in your contract performance evaluation journey.

How can you build a successful contract performance evaluation process?  

Having recognized the importance of evaluating contract performance for stronger business relationships, let us now explore the four key considerations for building a comprehensive and effective performance evaluation process for contracts.  

Establishing Contract Performance Metrics:

To build a successful contract performance evaluation process, the foundation must be laid in the pre-signing stage. It is crucial to establish clear and specific contract performance metrics much before the proverbial pen is put to paper. These metrics should be mutually agreed upon and laid down as important yardsticks for measuring the delivery of the contract. 

Download our Whitepaper- Five Metrics For Successful Post-Award Contract Management

This step is especially crucial for contracts which are built on SLAs which the suppliers or partners need to adhere to. Measuring timelines, incident response time, ongoing costs, regularity of services etc. is key in ensuring the contract is being delivered as promised. To get a better understanding of KPIs you should be tracking, read our blog “KPIs in-house counsels and legal operations must track 

Collecting and Analyzing Data:

Once the performance metrics have been established, it is crucial to continuously monitor and measure the performance of the contract. This requires the collection of relevant data at regular intervals to assess the progress of each party involved in meeting the agreed-upon obligations.

For example, in a construction contract, data can be collected on the number of days taken to complete different phases of the project, the vendor partner’s compliance with safety regulations, etc. By analyzing this data, contract owners can identify areas for improvement and take corrective action to ensure that all SLAs are being met. 

Explore with our eBook- How To Prepare For Migrating Legacy Contract Data Into A CLM Solution

Communicating the Results:

It is best practice to generate a periodic contract performance report at predetermined time intervals. This not only communicates the results to the parties involved but also lays out a roadmap for improvements and course-correction if needed. 

The process of generating these reports has become seamless with the help of new-age contract lifecycle management tools. These tools offer a single source of truth to view and access all relevant contract performance data on one unified dashboard.  Additionally, they can be used to automate data collection, track KPIs in real-time, and generate reports to provide a comprehensive view of contract performance.  

Identifying and Implementing Improvements – Contract Performance Review:

The contract performance review is the final step in the evaluation process. This step is essential as it helps to ensure that future contracts are more successful. A well-defined and periodic review process can enable businesses to identify trends and opportunities for improvement more quickly and accurately, allowing them to stay ahead of the curve and maintain a competitive edge in their industry. 

CLM tools like Zycus’ iContract make it easy to keep track of improvement areas based on contract performance by enabling stakeholders to configure alerts & reminders and notify them of contract milestones on time. 

3 Critical Risks a Robust Contract Evaluation Plan Can Help Mitigate 

Unplanned costs:

A significant risk in contract management is exceeding the agreed-upon costs. To prevent this, a robust contract evaluation plan should track the Order Value Variance (OVV) between the original contract value and the actual value. A high OVV indicates the need to improve communication with clients, assess contract goals, and review contract language for accuracy. 

Watch our On-demand Webinar- Contract Management- Extending Cost Savings And ROI 

Risk of timeline delays:

It is crucial to evaluate whether the vendors adhere to the agreed-upon timeline in the contract. Timelines can go awry, especially for long-term contracts and missed timelines can cause a domino effect on the entire project or even a business’s reputation. This is why monitoring and evaluating vendor adherence to the timeline agreed upon in the contract is essential. The evaluation plan you put in place should include a review of the scope of work and milestone timelines to ensure they are always met. 

Risk of non-performance:

A vendor’s trustworthiness and reliability are critical when it comes to contract performance evaluation. Contract managers should track the vendor’s compliance with the SLAs (Service Level Agreements) agreed upon in the contract. SLAs should include specific metrics and targets, and the vendor’s performance should be regularly monitored against these targets.

Download Our Whitepaper- Designing A Better Contract Risk Management Framework With CLM

Conclusion  

In conclusion, a robust contract evaluation plan is essential to ensure that contracts are adhered to, and the parties involved are performing as per their obligations. The plan should include clear performance metrics, regular data collection and analysis, and effective communication of results. In addition, organizations can minimize risks and optimize their contract management processes by implementing best practices such as tracking OVV, monitoring timelines, and ensuring vendor regularity.

The latest Contract Lifecycle Management (CLM) tools can also help streamline data collection and ensure data is well tracked, making it easier to identify areas of improvement and course-correct if necessary. Ultimately, a well-executed contract evaluation plan can improve organizational efficiency, reduce costs, and enhance customer satisfaction.

To understand more about how Zycus’ CLM can help you build a better contract evaluation plan, schedule a call with our solution experts today

Related Read:

4 Contract Management Metrics to Continually Measure and Optimize your Contract Performance

Top 5 Pre And Post Award KPIs To Optimize CLM Performance

Best Practices to Ensure Contract Compliance – Part 4: Define Contract Performance Benchmarks

Tracking Contract Performance with AI Driven CLM

Enhance Contract Performance with Customizable Reports

Author

Mr. Panchal is the Vice President at Zycus. An ardent promoter and practitioner of Theory of Constraints and CCPM, Digesh brings with him deep domain expertise from his long and rich personal experience in manufacturing. In his prior stint at Verdantis, he has led highly complex implementations of Master Data Management solutions for multiple master domains, across various industries and varied deployment models. As a forward-thinking leader with extensive experience in the design, development, testing, and rollout of cutting-edge B2B SaaS solutions, Digesh excels at driving the day-to-day operations of complex enterprises to produce turnarounds. At Zycus, Digesh is responsible for building a best-in-class AI-driven Enterprise CLM software and drive market traction.
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