IBM Maximo Simplifies Contract Management

IBM Maximo simplifies Contract Management and enables monitoring of contract performance.

The business world is full of agreements; be it a contract for sales/purchases, partnership agreements, leases of plant/equipment, employment agreements. The contract can be verbal or written. However, one tends to prefer a written document as is it much more difficult to prove the existence of a verbal contract. Furthermore, some contract types are required in writing so as to avoid misunderstandings, change in terms and conditions, etc.

The overall idea is to have a legal document, which safeguards all the parties involved in the agreement by stating their expectations and outlining terms and conditions, liabilities, and how disputes are to be handled and resolved.

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There are four essential elements to make up a legally binding contract. A contract is formed when one party makes an offer that is then accepted by another party in exchange for something of value, commonly known as consideration. The intention of legal consequence then seals off the contract.

Contracts are extremely important documents – They basically define the business’s relationship with its partners, suppliers, customers and employees so one can appreciate that for larger businesses, there can be hundreds and thousands of existing contracts. It can be quite challenging for a business to keep track of all the contracts and assess how they’re performing. Actually, just being aware of a contract’s existence and keeping track of start/end dates is already cumbersome.

The typical contract life cycle within a business would involve some or all of the steps outlined in the below process (depending on the size of business, value of contract, etc.).

At Request stage the needs for a contract are identified together with any terms and conditions that are specific to a big project or a high value contract, for example. Following the request, there would usually be the creation of a Tender Book to specify, amongst other things, the scope (as per request), general terms and conditions, special terms and conditions specific to that contract, pre-qualifications for supplier in relation to supplied material and standards followed. Evaluation is then carried out by the evaluation committee when offers are received from suppliers. The committee would generally first look at pre-qualifications, commercial aspects such as general terms and conditions, whether the company legally registered in country, required certificates, technical and financial aspects, etc.

The Evaluation and Negotiation stages are sometimes overlapping processes. An Internal approval followed by an awarding letter to the contractor is the next step in line. The work can then start as this is a show of commitment and the contract document can be produced. The execution phase represents the time when the contractor is carrying out the work and call-offs can be raised against the contract. Good contract management will ensure that the terms of the contract are respected; quality control of the work and deliverables, compliance with the agreed timeline and avoid over-spending. As part of Auditing, random checks can be performed to enforce regulatory compliance as per contract. These can be checks upon contractor deliverables and/or services. Analysing the performance of the contractor, quality of work/services and performance assessment are part of the Analysis phase. At this point, one can review the contract type, terms and conditions, and identify any required changes.  This analysis might give rise to a renewal or an extension of the contract.

There’s always room for improvement. The trick is to acknowledge this simple fact and being open to the changes that progress and improvement bring along. Better contract management can lead to long-term strategic deals, recognizing revenue more efficiently, use renegotiation windows to improve terms and ensuring operational and regulatory compliance hence reducing, with the possibility of avoiding all together, penalties and sanctions.

Furthermore, finding the right software solution can facilitate the overall contract-related business process and is key to monitoring contracts and controlling expenditure.

IBM Maximo Contracts Module

To support contracts management and enhance the business processes, Maximo offers a Contracts module with a variety of contract types to cater for purchasing (including price and blanket contracts), leases and rentals, labour and warranty.

Depending on the contract type, a series of tabs and fields are available to hold as much information as required within the system. Maximo also allows for a set of properties to be configured and/or viewed upon contract creation. Default values and editing rules can be set for some/all of the properties. These values are set in the organisations application. These properties include values for maximum spend amount and maximum release amount, whether the contract is extendable, if there is a payment schedule, etc.

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Maximo offers the possibility of creating a ‘template’ for contracts that have a number of details and properties in common. This functionality is available in the Master Contracts application. A master contract is used to define the relationship with a supplier that can be applied to a number of contracts. A master contract is particularly useful when several types of contracts are to be associated to the same supplier.

To tie in with the advanced asset management functionality, Maximo offers Warranty Contracts. This specific type of contract defines the agreement to maintain one or several assets. A scheduled set of payments can be set up so that the asset maintenance is carried out by an external service provider and/or contractor. Warranty contracts are used to track warranty information for assets and locations by time or meter.

For contract renewals and extensions, Maximo offers the ‘Revision’ functionality whereby one can revise an active contract to amend any terms or details that have been updated for the upcoming valid contract period. The system allows for the generation of notifications based on the expenditure against a contract so that any necessary actions can take place within the business. Notifications can also be created in the form of reminders when the approaching the ‘End’ date of a contract.

Using the Contracts module, one can easily keep track and stay up to date with any existing contracts by reporting on, for example, the Company name, value of contract, start and end date of the contract. Key performance indicators and dashboards can be utilised to monitor contractor performance in terms measures that include quality, timeliness and efficiency.