5 Steps for Assessing Vendor and Contract Lifecycle Management (VCLM) Platforms

Rapid growth in the number of vendors your business works with and the consequent increase in contract volume raise risks related to compliance, cybersecurity, financial stability, and operational disruptions if that growth is not handled well.

The systems, processes, and practices you currently use to manage your vendors, contracts, and associated risk may not be able to handle such growth - especially if they are essentially manual. If that’s likely the case for your situation, you need to consider taking preventative measures sooner rather than later.

A combined Vendor and Contract Lifecycle Management (VCLM) system with integrated Third-Party Risk Management (TPRM) capabilities will allow your business to streamline vendor interactions, track contractual obligations, and continuously monitor third-party risks in one comprehensive platform.

Selecting any new piece of software takes effort as not getting it right can have many undesirable financial, operational, professional, and reputational consequences.

This article provides a guide to help you prepare for assessing VCLM platforms by establishing a set of requirements that candidate platforms must, should, or might meet.

1. Assemble an Assessment Team

To get a complete understanding of how to manage vendors and their contracts, it’s important to involve different perspectives. This ensures that every aspect - like what is done, how it’s done, when, where, why, and by whom - is covered thoroughly.

People with some stake in how well your vendors and contracts perform can include:

• Contract managers: Monitor compliance with contract terms and regulations
• Contract owners: Advise about vendor delivery and quality performance
• Compliance/risk officers: Assess and mitigate risks associated with vendors and their contracts
• End users of vendors’ products and services: Provide feedback on the performance and quality of vendor products and services
• Finance teams: Validate and pay vendor invoices
• IT teams: Monitor the performance of critical infrastructure vendors and their cybersecurity stance
• Legal teams: Negotiate contract terms and advise about regulatory compliance requirements
• Operational/business function managers: Advise on how well different contracts with different vendors meet their operational needs
• Senior management: As needed, adjudicate on assessment team requirements prioritisation disputes that can’t be resolved within the team
• Vendor relationship managers: Manage the ongoing relationship with vendors, particularly regarding performance and compliance.

These people can contribute to discussions about problems experienced with the ongoing management of vendors and contracts, the operational and informational challenges they face, their needs for a VCLM system, and a wish list of features they’d like to see in it. 

When managing a large number of vendors and contracts with many stakeholders involved, consider keeping the assessment team small. Include only those who are directly involved with vendors or contracts that meet one or more of the following criteria:

• Considered as among the most important to your business
• Exceed a designated level of spend annually
• Have a high probability of a high impact risk occurring
• Require significant attention from a performance/compliance viewpoint
• Will be terminated as soon as contractually and practically possible.

2. Document How Vendors and Contracts Are Managed Today

Create a questionnaire for the assessment team that outlines the specific feedback needed on current vendor and contract management practices. It should cover aspects like:

• A list of the main vendors and contracts the assessors deal with as part of their function or role
• The main issues assessors have to deal with when it comes to vendor and contract performance, the impact of these issues on their operations, who they go to for help, and how satisfied they are with that help
• The assessors’ level of involvement in how vendors and contracts are currently managed, and how risks are identified, categorised, mitigated, and monitored
• The usability and effectiveness of current vendor and contract management processes and platforms like vendor onboarding, ongoing risk assessment, and contract compliance monitoring
• The quality, currency, and relevance of any applicable process documentation available to the assessors
• The responsiveness of Contract Management, Legal, and any other teams to concerns raised by assessors about problematic vendors and contracts, emerging risks, and risk mitigation effectiveness
• The assessors’ view of the major problem areas with current vendor and contract management approaches, and how their function is specifically and more generally affected by such problems.

3. Isolate the Main Problem Areas in your Vendor and Contract Management

Summarise and consolidate feedback from the assessment team to reveal the common and unique challenges the different areas of your business are facing with current vendor and contract lifecycle management approaches.

Collect all available process documentation for review. Mark it up with details of current activities and their owners, users of those processes, plus their levels of compliance, activity gaps, bottlenecks, redundancies, and manual vs. automated steps.

Identify any technologies used in these processes, their usability, effectiveness,  robustness, and anything else that's relevant. Your aim is to produce a thorough list of problems that need to be eliminated from your business's current processes.

4. Determine the Blue-Sky Scope of Your VCLM Needs

Armed with your problem list, formulate a revised approach covering everything that must, should, and might be done to set up vendor and contract management for the immediate future.

Using our downloadable requirements template, start by listing capabilities that resolve or remove as many of your existing problems as possible, like comprehensive reporting, sophisticated search, contract clause libraries, or integration with online third-party risk information providers.

Research the VCLM systems on the market to identify their capabilities, the problems they solve, and the opportunities they offer. This can include:

• Integrations to other systems you are using
• No-code workflow automation to replace manual processes
• AI tools to generate contract summaries. 

A critical element of your VCLM needs that can’t be overlooked is your data requirements: what you want to record about vendors and contracts that will enable a broad spectrum of management activities.

This type of data might cover aspects like the regulations that need to be complied with to allow checking of both your and your vendors’ level of compliance with all applicable regulations.

You might want to record any number of key dates for an activity to start on or finish before and have the necessary people automatically alerted about the need to commence or conclude such an activity.

Don’t forget that it’s important to assess how VCLM system vendors protect the sensitive data contained in your contracts, how quickly they provide support if and when things go wrong, and how often they release updates and upgrades to their software.

5. Finalise Your VCLM Requirements

It’s now time for the assessment team to whittle this list of requirements down to something more realistic and manageable, both for vendors to respond to and for your business to assess those responses.

This is a prioritisation exercise where solving the more problematic and consequential issues in managing vendors, contracts, and their related risks is most important. Prioritisation should assign requirements as mandatory, desirable, or optional to allow comparison of VCLM system capabilities.

Update the requirements template to reflect the outcomes of the prioritisation exercise. Obtain sign-off on the finalised template by all assessment team members to confirm its accuracy and completeness. You are now ready to test what the market has to offer in terms of your vendor and contract lifecycle management requirements.

Wrap-up

Evaluating a Vendor and Contract Lifecycle Management system requires careful preparation as it brings together critical inter-connected business functions.

Involving stakeholders with direct or indirect involvement in the management of your vendors and/or contracts is essential. Defining your current challenges and outlining clear system requirements is the critical precursor step that allows you to realistically and effectively assess and select an appropriate VCLM system.

As the old adage goes, failing to prepare is preparing to fail. Crash and burn is often the outcome of winging it, and that’s a risk too far when it comes to your vendors, contracts and related risks. Prepare properly to avoid this fate.

To arrange a tailored demonstration of Gatekeeper, get in touch with us today.