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Contracts are an integral part of financial, compliance, and business development processes. Effective contract management mitigates material enterprise risk, improves cash collections, and reduces wrap rates.

Based on interviews with over 70 GovCon Finance and Contracts leaders, below are four crucial revelations CFOs must know:

1. Most CFOs Are Making Decisions Based on Inaccurate Information.

CFOs, BD, Compliance and other executives are often making vital decisions based on inaccurate reports from their well-intentioned Contracts teams.  Most executives making data calls to the Contracts department are “clueless” about the great magnitude of the manual effort required to answer relatively basic questions (e.g., “which contracts have that new cybersecurity clause?”).  Given the limitations of manual processing, even if two experienced Contracts professionals responded to a typical data call, they would likely deliver different answers.  CFOs are making critical financial and risk management decisions based on manual processes that often result in inaccurate data and reports.

2. Auditors Are Documenting Contract Management Deficiencies.

A large GovCon firm recently went through an audit that yielded the auditor’s finding, “Your contracts information -if printed- would fill many thousands of pages.  Due to the limitations of the current contract management processes, several data elements are stored in multiple places resulting in an unacceptable lack of data integrity.”

The pace of audits will increase.  GAO recently quantified how far behind DoD is on reviews of contractors’ business systems.  The DCAA now has an ambitious plan to catch up on the backlog and encourages contractors to take the time and make investments to improve the veracity of their contract management system.

3. DSO Is Too High.

When a client invoice doesn’t accurately match the underlying contract, the invoice is rejected, and payment delayed, driving up DSO.  It then takes hours from multiple departments to manually locate the contract data needed to correct the discrepancy and resubmit the invoice.  This needlessly drives up DSO and required working capital.   Modernizing contract management includes integrating and synchronizing the data in the contract lifecycle management (CLM) system with the financial system.   Doing so increases fidelity of the financial data and eliminates disconnects between the document of record (i.e., the contract) and the financial system of record to increase the velocity and accuracy of invoicing.

4. Risks of Disallowed Revenue Are Lurking.

In addition to the risk of having payment delayed because the invoice fails to match the underlying contract, contracting officers may disallow all or part of claimed costs that are inadequately supported.  Many firms’ contract management processes make it difficult or impossible to maintain adequate records and supporting documentation proving that costs have been incurred, are allocable to the contract, and comply with applicable cost principles.  Modern CLM systems provide the system of record for all contractual and deliverable documentation necessary to support accurate and complete invoices.

Modernizing Contracting Processes and Systems

To resolve the issues outlined above, as well as streamline and standardize contract management processes and reduce costs, leaders are modernizing Contracting systems.  Almost all GovCon organizations invested in Financial, Human Resources, and CRM systems during the last three decades.  Given the integral nature of Contracts to federal business and availability of affordable COTS software systems, Contract system modernization is in full swing.

When choosing any software system, cost, cybersecurity, and user-friendliness are fundamental criteria.  When choosing a GovCon contract management system, there are a few particularly important criteria, including:

• Is the system proven effective for government contractors? Generic contract management systems, those built for basic records management or for other industries, or built by internal IT departments usually take $2-$5 million to “customize” before going live and are often abandoned by IT before go-live or by users shortly thereafter.
• Is the system built by a reputable software company with deep contracts expertise? Even if your financial system software vendor has served you exceptionally well, their contracts clip-on app is likely to disappoint your contracts professionals and thus fail to deliver the risk mitigation and efficiency gains you seek.  By way of analogy, Salesforce.com is a widely acclaimed CRM system; but one should be skeptical that Salesforce.com knows HR or Finance well enough to warrant the career risk of buying an enterprise HR or Finance system from them.
• Is the system supported by experts who can guide your decisions regarding data migration and integration? A good software package without data or with conflicting data is worthless or worse.  Successfully migrating every single byte of gigabytes worth of contracts from paper or legacy systems can be impossible or prohibitively expensive and time consuming, if not supported with proven automation and exception handling techniques.  If you do not select a provider with proven data migration abilities, initial estimates of costs and dates will be greatly understated.

A final tip — Include in your business case:

• Time savings achieved through automation of Contracts professionals’ top ten types of tasks that consume 80% or more of their time on average;
• A reasonable model of the expected value of issues preempted by accurate, real time data, including those highlighted above;
• Full cost analysis, including software, hosting, data migration, and integration to your financial system.

Click here for a redacted business case template based on redacted business cases collected from several of your peers.

Click here to download a printer-friendly version of this report to review with your Contracts leader.

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