Time-to-contract is the period between agreeing a deal and signing the contract that formalises the arrangements and allows the deal to become operational.
The time-to-contract process is the set of activities required to negotiate a contract’s terms and conditions, obtain approval of the contract and finalise the contract by way of signatures.
At the end of the process the contract can go into operation.
When we talk about enhancing your time-to-contract process, it’s important to recognise that we’re not simply talking about making it faster.
Time-to-contract is subject to two imperatives:
- Speed: This is obviously an important consideration. The sooner the contract is signed, the sooner the benefits of the deal can start to be delivered, and the people involved can move on to the next deal or contract requiring attention
- Quality: This is the second major consideration. In terms of fitness for purpose, flexibility, balance and risk mitigation, the better the shape the contract is in, the better it will enable delivery of the deal throughout its life
Aside from these two major areas, cost is also a consideration in this contract management process.
Generally these costs are internal and correlate with time spent on relevant activities, but there may be circumstances where external support is required from lawyers, benchmarkers, consultants and other specialists in the contract subject matter, financial / tax matters and so on.
The main focus of this article will be on how to find the right balance between speed and quality.
However, it’s worth bearing in mind that the ultimate goal of the time-to-contract process is a contract that’s good enough, signed soon enough and is cheap enough, to keep everybody happy.
Setting the Scene: The eternal debate over speed vs quality
Depending on circumstances, doing a job faster or doing it better may be the priority. Delivering on the priority element may be, and commonly is, achievable only at the expense of the non-prioritised element.
There is much heat but little light in the speed versus quality debate. It is common for these imperatives to be considered as either/or: you can have one or the other but not both.
This is often due to the different priorities of the people who strongly support one imperative over the other, even while agreeing that the other is important, but just not as important.
This is fallacious thinking, because the reality is that both speed and quality are necessary.
Balance is needed to ensure that there isn’t too much of one at the expense of the other. The accumulation of experience in embedding quality into a contract will inevitably lead to maximisation of speed.
It’s not surprising that speed gets the focus of attention though. A common outcome is that time-to-contract takes longer than expected or desired by any number of stakeholders.
Speed is visceral and visible, because time-to-contract progress is apparent in real-time. A perceived lack of progress can lead to frustration, complaints, disenchantment with the process and sometimes unfair blame. It can also induce a risk to quality through pressure to keep the speed up and the cost down.
Quality on the other hand can’t begin to be tested until the contract is in operation. Somewhat counterintuitively, quality is typically not visible, being represented by the absence of issues or events that cause hiccups in the contract’s operation or cause it to fail - sort of a ‘no news is good news’ situation.
This asymmetry of evidence is often at the heart of the disagreements or discussions of speed vs quality. We’ll look to explore this further in the rest of this article.
Having set the scene, in this article we’ll discuss:
- Some assumptions about the time-to-contract process
- Examples of contract stakeholders
- Expectation management
- The activities involved in delivering a signed contract
- Influences on time-to-contract
- Providing visibility into the time-to-contract journey
- Using technology to facilitate time-to-contract.
For the purposes of illustrating the concepts in this article, the following assumptions will apply:
- For the sake of simplicity, there will only be two parties to the contract: the organisation requiring certain products or services, and the supplier selected to fulfil the need
- The supplier’s contract will be used to formalise the agreed deal
- The supplier’s contract will be available by the time the deal is struck, so its development will not contribute to time-to-contract
- The terms of the contract will be negotiated by the two parties
- The activities to be performed during time-to-contract will be described from the organisation’s viewpoint
- All costs associated with time-to-contract activities will be those incurred by the organisation.
2. Who are a contract’s stakeholders?
It’s worth noting here that stakeholders in a contract can be:
- The Contract Lifecycle Management team
- The Legal team
- The contract sponsor / owner
- The people who will use whatever the contract provides
- The people who need to comply with the contract’s terms and conditions
- The people who will own the operational relationship with the supplier
- Senior management at various levels
3. Expectation management
A statement from people who are not involved in contract negotiations but are waiting for its execution might go something like this:
’It’s a straightforward 10-page contract, so let’s just sign it and get on with it. Surely it couldn’t take more than a few days’.
What is more rarely if ever heard is the complaint from the people negotiating the contract which might go:
‘This is a really bad contract! They’ve got all the rights and we’ve got all the risks and obligations! It’s inflexible and will be an admin nightmare! It will take ages because it looks like we’ll have to negotiate just about every clause!”.
With the advantage of knowing both viewpoints, the difference in expectations Is immediately obvious.
The first is unrealistic, as it's based on nothing more than contract size. The second is realistic, based on the contract’s lack of balance and experience.
Unrealistic expectations generally flourish due to lack of knowledge, lack of understanding, unjustifiable assumptions, over-reliance on perceptions rather than facts, wishful thinking and/or mandated alignment with ‘auspicious’ or otherwise ‘important’ dates like the end of the quarter or the chairman’s birthday.
Unrealistic expectations can be expected to proliferate in the absence or disregard of facts, estimates, guidelines and/or advice.
Facts are inviolate. Estimates and guidelines are a best guess made with consideration of the available facts, experience, insight, foresight, farsight and a crystal ball.
An unrealistic expectation is:
- That an estimate is a guarantee.
- That a date selected somehow for achievement of a fully executed contract, established on the basis of desire by somebody who has no knowledge of the work, the considerations or the people involved in achieving that state, will be met.
The common perception that time-to-contract takes too long is often based on unrealistic expectations.
The most common root cause is the absence of relevant, meaningful information.
The optimal solution to this problem in the case of time-to-contract is to increase the visibility of the process and its attendant constraints for the benefit of all involved.
It means explicitly setting expectations for contract stakeholders on the basis that any amount of realistic guidance is better than none.
This requires the negotiation team to:
- Quickly assess some key characteristics of the contract that can affect timing
- Prepare an experience-based ballpark time estimate for achieving time-to-contract that takes account of what is known and makes an educated guess about everything else
- Derive best-case and worst-case dates for time-to-contract and express those as the target period
- Proactively set expectations by publishing the time estimates
- Reset expectations as more details emerge allowing refinement of the estimates.
4. What’s involved in delivering a signed contract?
The high-level activities involved in the organisation obtaining a signed contract, including waiting for completion of various activities under the organisation’s or the supplier’s control, are:
- Review the supplier's contract, using How to review a contract as a guide
- Wait for any internal feedback
- Update the contract review with any feedback received
- Send contract review results to the supplier
- Wait for the supplier’s response to the contract review results
- Review the supplier’s response and prepare a follow-up response
- Repeat steps 2 - 6 until all contract changes agreed with the supplier
- Summarise the key contract features
- Request internal approval to continue
- Wait for internal approval of the negotiated contract
- If internal approval is denied:
- Address all internal concerns
- Send latest changes to supplier
- Wait for the supplier’s response/agreement
- Repeat steps 11i-11iii until changes agreed with supplier
- Repeat steps 8-11 until internal approval received
- Request supplier approval of the finalised contract
- Wait for supplier approval of the finalised contract
- If supplier approval is denied:
- Address all supplier concerns
- Repeat steps 8-14 until supplier approval received
- Request internal contract signature
- Wait for internal contract signature
- Request supplier contract signature
- Wait for supplier contract signature
- Advise all parties about successful contract execution.
What this list shows is that about one-third of the activities involve the organisation’s negotiation team waiting for somebody else to complete a task.
The wait time can’t be accurately estimated without insight into the circumstances those other people are operating under.
Increasing the pressure to deliver on those other people without any understanding of the causes of any perceived delay is another example of unrealistic expectation.
This pressure may backfire and have unintended consequences. It’s worth remembering that the supplier’s negotiation team not only has to wait in turn for the organisation to complete its various time-to-contract activities, but is also likely to be subject to the same sort of speed, quality and cost requirements.
One way to speed up the delivery of a signed contract, without creating additional pressure, is to use electronic signatures. Watch the on-demand webinar below to find out more about speeding up time-to-contract with Gatekeeper's eSign solution.
5. What can affect time-to-contract?
At a conceptual level, a cookie-cutter approach to time-to-contract should work because the same things need to be done every time.
It’s a classic stimulus-response situation, where the organisation does something, the supplier then does something in return, things loop around until everybody is relatively happy, then everybody moves on to the next step in the process or back to an earlier step as required.
The variables in the time-to-contract process, like in every process, are what gives almost every instance or activation of the process a measure of uniqueness.
Dealing with uniqueness means catering for something that is non-standard in some fashion, and that takes time.
So, given our fairly standardised time-to-contract process, what are the variables that can positively or negatively influence the time it takes to transit the process?
Following in no particular order are some variables that can be encountered, could be anticipated or might be hoped for as potential time-influencers, plus an indicator of when each would be assessable during the contract review activity:
- Contract familiarity (pre-review): the less often a contract subject or type has been used, the higher the review effort needed
- Contract importance (pre-review): the more critical a contract is to the organisation’s success, the closer its review needs to focus on the details
- Contract inventory size (pre-review): the more active contracts that exist, the greater the likelihood that one or more important contracts have been pre-scheduled for review in the same period as this contract
- Contract size (pre-review): the larger the contract document(s), the longer the time required for reading, understanding and reviewing them
- Contract term (pre-review): the longer the term, the more contract flexibility needed for dealing with change and early termination options
- Contract value (pre-review): the higher the value, the greater the scrutiny needed
- Deal closure rate (pre-review): the higher the deal closure rate, the greater the number of new contracts to be reviewed in any period
- Contract complexity (mid-review): the greater the commercial / legal complexity of the contract, the more specialist subject matter advice is likely to be needed
- Negotiation flexibility (mid-review): the less flexible the general negotiation position of each side, the longer it’s likely to take to reach any sort of agreement
- People availability (mid-review): the more often people involved in the contract review are not available, the greater the potential effect on the review timetable
- Risk potential (mid-review): the larger the contract’s risk scope, scale and potential, the more need to ensure appropriate treatment of risk
- Waiting time (mid-review): as described earlier, there are many opportunities for waiting time to occur during the time-to-contract process. The larger the wait time, the greater the effect on the review timetable.
Depending on the nature of the contract, other time-influencers may come into play with varying effects.
Discovery and consideration of such time-influencers is required for estimating in advance just how long it might take to negotiate a contract and get it signed off.
6. Providing visibility into the time-to-contract process
Despite being informed of best-estimate completion dates, it’s not uncommon for a contract’s stakeholders to be completely unaware of how progress is tracking towards those dates.
Yes, they can and do ask, but answers like ‘getting there’, ‘soonish’, ‘not sure’, ‘this supplier is pretty hard to deal with’ or ‘sorry, it’s not a priority for us at the moment’, while probably the case, aren’t much help.
When definitive answers just can’t be provided to the ‘are we there yet?’ questions, the negotiation team can help themselves and the stakeholders by regularly reporting on how progress to contract signature is going.
Three types of information can provide visibility of the time-to-contract process:
- A list of the time-influencers initially known to be in effect for the contract, plus an indication of their settings and expected effects on time-to-contract.
For instance, Contract Size might be in play with a High setting indicating that the contract has say 250-500 pages, which in turn indicates an extended review time. Update this list whenever a new time-influencer is discovered.
The purpose of this list is to provide a sense of the evolving work effort needed from the negotiation team, and the potential stumbling blocks or delayers.
- The current best guess at a finalisation date or date range for achieving a fully executed contract. Emphasise that this is conditional and subject to change as more information becomes available, such as the discovery of new time-influencers.
- An audit trail of the completed steps and the current step in the activities needed to achieve a fully executed contract. This should ideally show how much time has been spent in each step.
A free Gatekeeper template is available for recording details of the time-influencers and the current time estimates for your process.
Proactively and regularly providing this sort of information will generally remove some portion of unwanted pressure on the negotiation team from the stakeholders, and on the stakeholders from the business.
It can also limit the level of interruption of the process, thus helping to keep things moving forward as smoothly as possible.
In the case where a contract has few detrimental time-influencers in effect, the time estimate is in the order of just a few days, and there's no real urgency about contract signature, then it may not be absolutely necessary to provide any detail other than the time estimate.
7. Using technology to facilitate time-to-contract
By capitalising on advances in artificial intelligence technologies, many Contract Management Systems these days provide useful, time-saving capabilities like:
- Summarising the essential features of a contract
- Identifying clause types in a contract
- Detecting variations between a contract clause and a preferred standard for that clause type
- Extracting the value of key metadata items in a contract
- Highlighting the presence or absence of certain clause types and metadata items in a contract.
These capabilities combined with other more common CMS functionality like workflows can help to simplify, streamline and automate time-to-contract activities like:
- Contract review
- Negotiation of terms and conditions
- Tracking and reporting progression through the required activities
- Reminding the concerned people of their obligations in respect of these activities.
The time savings achievable by use of these capabilities, mainly in the form of minimisation of human intervention, can help satisfy or at least attenuate stakeholder concerns about achieving the speed and quality imperatives of time-to-contract, while also containing the costs.
Unless exceptional circumstances apply, efforts should focus on contract negotiation, approval and signature of a new contract in the minimum practicable time necessary and at the lowest cost achievable to obtain the contract quality needed to ensure delivery of the expected benefits over the course of the contract’s lifetime.
Despite the well-known difficulties of accurate time estimation, a best-efforts guess of the time-to-contract should be made. Delivered along with a guide to what needs to happen to get a new contract signed, the estimate provides contract stakeholders with a basis for setting expectations.
Proactive steps to keep interested parties informed about updates to the time estimate, and progress towards delivery of the signed contract can help to ease pressure, angst and frustration for both the negotiation team and the contract’s stakeholders.
Utilisation of current and emergent technologies now available in contract management software can significantly enhance the organisation’s ability to comply with the twin imperatives of speed and quality, and help to contain costs.
Rapid and effective achievement of projected time-to-contract can consequently establish and enhance the negotiation team’s reputation as business enablers, not barriers.
In this article we’ve presented an approach to help you navigate the time-to-contract journey, improve your contracting processes and provided a useful free template that can be modified to suit your particular circumstances.
If you would like more information on how to manage your time-to-contract process then contact Gatekeeper today for a free consultation.