The first year of the Biden administration is an ideal time for government agencies to re-evaluate processes and identify areas that still need improvement. While many industries have undergone a dramatic digital transformation over the last decade, the government sector has historically been a late adopter for new technologies. Data from the International Association of Contract and Commercial Management (IACCM) showed that only 33% of the public sector adopted contract repositories, versus leading industries at 60-80% adoption.
During the pandemic, it became essential for government organizations to modernize internal process such as procurement to increase the efficiency of day-to-day commercial operations. In fact, a Harvard Business Review study found that almost half of respondents reported the pandemic is accelerating the automation of the procurement process. For instance, last year the U.S. Air Force and Army took steps to modernize its procurement process, putting initiatives in place to implement a more efficient, digital approach to procurement. In addition to virtual reality training for officers, a key step in their procurement team’s digital transformation has been adopting modern contract lifecycle management (CLM) software to ensure all contracts and clauses are being upheld.
That’s just one example, as digital contract management has become a critical function and a hot topic for government CIOs. Below are three areas where CLM increases efficiency in the contracting process to speed up federal procurement.
The COVID-19 crisis exposed many areas where public sector departments required improvement. It also revealed a need for the government to prioritize mitigating the risk of critical product and service shortages, such as medical equipment and technology. Specifically, it highlighted pain points and security weaknesses from government’s extensive use of manual processes for contracting and procurement.
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During the crisis, government agencies quickly sought to deploy more sophisticated software platforms to reduce time-to-signature and manage hundreds of thousands of ever-changing contracts, leading to a boost in spend on digital contracting processes. Increased speed to contract leads to faster agreements and expedited procurement to drive results. Software tools like CLM provide faster access to procurement services because it seamlessly routes work between procurement and finance systems, simplifies onboarding, and automates risk assessment.
With the CLM technology available today, purchase orders shouldn’t pile up in offices, unprocessed until someone physically picks them up. CLM eliminates the need for staff to sift through storage facilities searching a specific paper contract. Looking ahead, widespread adoption of modern CLM powered by artificial intelligence (AI) can take federal procurement to a new level of dexterity to meet today’s demand for real-time data and smarter decision-making.
The pandemic also proved just how important speed to contract is, especially for healthcare systems and government entities. In many cases, procurement contracting requires customers and vendors to approve any changes to materials, which can create a bottleneck and cause significant delays. These organizations have had very singular missions this year: Create vaccines, expand testing and expand bandwidth for patient services. These critical public priorities demanded very fast speed to contract with new suppliers and new means of distribution.
For essential services, it is not feasible to take the time to search through paper-based contracts, disparate electronic forms, emails and spreadsheets to get procurement deals done. That approach has left many organizations in disarray, jumping from one emergency response to another. With a proper automated CLM system, contracts are all in one digital location and can be edited and approved by multiple users in real time. Having all public contracts organized, digitized and searchable for staff members helps them to stay knowledgeable of the risks and opportunities from procurement deals.
This also helps to increase compliance and lower risk, because the legal teams and leaders in the public sector have complete visibility into the full terms of contracts with third parties, enabling them to negotiate better terms or futureproof contracts for the next crisis or shutdown.
Risk management is an increasingly important function for organizations as part of their overall governance, risk and compliance (GRC) strategy. The pandemic heightened awareness of blind spots that organizations have around contracts, which can create unnecessary compliance risk and financial liability. As a result, organizations in the private and public sector are now taking steps to address these concerns and reduce contractual risk.
The first step to assessing contractual risk is having an accurate inventory of all contracts and the data sets within their contracts. For example, President Biden launched an executive order to review critical U.S. supply chains in response to the detrimental shipment delays and product shortages during COVID-19. A key part of that review is tracking down the “paper trail” or digital footprint of foreign organizations that are doing business with U.S. companies in the supply chain to ensure there are not major security risks or product defects.
Contract repositories contain a great deal of data such as dates, names, types of clauses, financial terms, dollar values and other important information. CLM systems enable teams to harness and structure contract data so it can be easily searched, sorted and added to reports and dashboards that provide the visibility needed to assess contract risk levels and even create risk scores based on the organization’s preferences. It’s also worth noting that since governing laws change country to country, contracts and pricing agreements between multiple international businesses can be highly complex. The terms and clauses of each contract must vary based on the specific global or regional needs of each party.
With CLM, the parties in the agreement can cross-reference deadlines and expiration dates of many contracts at once to quickly assess risk and make critical business decisions accordingly. In addition to that complexity, there is increasing pressure on the public sector to negotiate better deals and for procurement professionals to spend less time and resources. It is essential for the public sector to keep track of all contract deadlines, expirations and other contractual obligations so this revenue bleeding doesn’t occur on a larger scale. In 2021, more agile and efficient procurement processes can play a role in economic recovery post-COVID, just as it did in the aftermath of the 2008 financial crisis, according to McKinsey & Company.
At the beginning of COVID-19, most legal teams were frantically searching their contracts for performance clauses, force majeure clauses, and looking for an understanding of how the pandemic would affect contractual relationships. This put a spotlight on the various weaknesses of federal contracting and procurement processes.
Looking ahead, CLM has the ability take federal procurement to a level of agility that is unheard of for the public sector. It helps to establish a better connection between federal agencies and the vendors they are contracting for specific products and services. The long-term impact CLM will have on federal procurement is creating a more resilient process and becoming flexible to meet the evolving needs of constituents.
Once the public sector fully leverages modern technology in its procurement process, there will better visibility into important data to make well-informed business decisions. Then, government organizations will be better equipped to react faster next time there is a crisis.
Eric Laughlin is CEO of Agiloft.