Objective:
To maintain a comprehensive contracts database to track, record and manage an organization’s contractual commitments in a timely and accurate fashion
Definition
A contracts database is a comprehensive repository recording an organization’s contractual commitments with its suppliers. Ideally, contract information should be stored in an electronic database that allows for quick and accurate information retrieval.
Rationale
A contracts database allows the organization to quickly save contracts in an organized manner, enables fast referencing, and facilitates contract changes and renewals. A central database of contract information allows the supply chain department to efficiently engage with suppliers and internal customers on contract matters, thus improving service to the organization.
Benefits
Financial Stewardship: A contracts database enables organizations to track items under contract and their associated expiry dates to support initiatives to increase control over expenditures. It also facilitates item procurement at the contracted price.
Process Efficiency: A central contracts database reduces administrative effort by having accurate contract information readily accessible to supply chain staff, thus enabling fast placement of purchase orders and a reduction in the number of accounts payable variations.
Risk Management: Tracking of all contracts and contract milestones is vital in the effective monitoring of contractual obligations to enable timely interventions and the mitigation of associated risks. A contract database also enables compliance with any Group Purchasing Organization (GPO) contracts.
Related Metrics
1.1 Percentage of Active Items under Contract
1.2 Purchasing Response Time
2.1 Average Cost to Issue a Purchase Order
2.3 Operating Costs as a Percentage of Expenditures
3.1 Number of Purchase Orders in One Month
3.3 Number of Purchase Orders Placed per Full-Time Equivalent in One Month
3.4 Average Lines per Purchase Order
3.7 Percentage of Invoice Matches
4.3 Percentage of Items Activated in the Master File in One Month
Guiding Principles
Effective contract management includes maintaining up-to-date contract information, tracking savings and ensuring contract agreements and conditions are met. Each organization must determine their contract database requirements. The following are scope questions that organizations should consider.
- What does the organization need in a contracts database and what functionality is required? Is the organization seeking to create a simple register of contracts, or is it looking for a variety of contract creation and management solutions, including templates, alerts, auto links to content catalogues, auto item price changes, compliance statistics workflow, etc.?
- Does the organization currently have the capability to implement the necessary controls and processes to limit who can authorize contractual agreements and ensure compliance in the use of these contracts? If not, it will be difficult to ensure the database remains current and complete.
- Which individuals/groups need to access the information in the database and for what purposes? Using security access controls, designated people can be given permission to make changes to the database, while others can be limited to read-only rights.
Key Components
Format
Contract information can be stored in a variety of formats, including manual registers, spreadsheet applications, and relational database management systems. The optimal format for an organization should be determined by weighing factors such as number of active items, number of contracts, number of requisitioning points, required access levels, required level of functionality, and available investment.
Off-the-shelf spreadsheets and relational databases have limited ability to provide all the functions and sophistication required to support effective contract management. Contract management modules, available with most supply chain management systems, provide considerable benefits such as superior functionality and, if web-based, wider accessibility, although they tend to be a more expensive option. The following is a list of examples of additional functionality that can be obtained with a contract management module.
- Contract template development
- Contract overview data field creation
- Contracting process definition
- Workflow and approval management
- Repository searches
- Alerting services including for contract renewals, milestones, etc.
- Contracts reporting
- Storage of standard clauses and pre-approved legal content
- Contract negotiation management including tracking of offline negotiations, versions and comparing contract language between multiple presented contracts
- Internal and supplier invoice compliance
- Pricing compliance — milestone payments, tiered pricing, formula-based pricing
- Transaction execution compliance including links to content catalogues to change item pricing as per new/revised contract terms
Original paper-based contracts should be kept in a secure location such as a fireproof safe; however, the use of only electronic contracts with legally approved electronic signatures can be explored as an alternative.
Contract Information
A contracts database typically contains the following basic information about each contract.
- Contract title and reference number
- Category/sub-category information
- Description of the contract and goods/services available
- Electronic copy of the contract
- Status — current or terminated
- Contract scope — geographic, business unit or user limitations
- Contract start date
- Contract end date
- Date for new Request for Proposal or contract extension discussions to start
- Contract type
- Supplier name
- Supplier details
- Estimated annual value or limits
- Key terms and conditions, milestones or restrictions
- Pricing, price breaks, rebates, etc.
- Responsible contract manager or supply chain employee and contact details
- Specific instructions for the supply chain employee who maintains the contract or purchases through the contract
Use of Contracts Database
Organizations should only allocate database access to those required to safeguard the system and the hospital. Only designated supply chain staff responsible for maintaining the database should have full read-write access. Other supply chain staff and customers, if appropriate, may have read-only access. The organization may also consider posting the database on a secure intranet site or portal if greater accessibility is required.
The organization should design a process for identifying opportunities for contracts for new item requests or increased usage of items. It is also important to provide mechanisms for customers to communicate their supply needs and provide feedback to support continuous improvement.
Implementation Challenges
Challenges:
- Any project that involves implementing new software is subject to many challenges. An information technology specialist or team must be engaged to draw up the functional requirements, select the right software, and develop a detailed implementation plan that identifies and mitigates the associated risks.
- The process to input all contract information in a single place is time-consuming and has significant room for error. This task requires that adequate resources are employed to ensure attention to detail to minimize errors.
