Beyond the Dollar Amount: Evaluating a Contract’s Value to Your Business

How much is the contract worth? How much value does your business gain from that contract? Most importantly, are those two numbers the same or similar?

A contract doesn’t just outline the negotiated details between you and a vendor; the contract details and fulfillment of the agreement determine the success and survival of your business relationship with a vendor.

It’s important then to be able to analyze the value of the contract to determine the health and continuation of the relationship. Do you have a system for evaluating a contract’s value, particularly one that’s up for renewal?

A few key questions to consider:

Evaluating the Vendor

• Has the vendor fulfilled its contractual obligations, and are your needs being satisfied?
• How did the vendor perform overall? How did his behavior enhance or hinder performance and your relationship?
• What hiccups, if any, with the vendor did you experience? How did it affect the overall relationship?
• How can the vendor improve the quality and timeliness of its goods and services?
• How frequently do you interact with the vendor? How much do you rely on the vendor for goods or services? Do you have an ongoing need for the vendor’s goods or services?
• How does the vendor compare to competitors in terms of price, customer service and quality of products?
• Is the vendor still capable of fulfilling the contractual obligations now and in the future?

Evaluating the Contract

• What are the current terms and conditions of the contract? Were there any details that were of initial concern when it was being drafted? Are there any details that are of current or future concern?
• Has the contract lived up to its potential of fulfilling your needs?
• What additional costs were associated with the contract? Did you keep within budget?
• Did the contract generate revenue or loss?
• If you were to change vendors, what costs (including potential associated time and training employees might need) would be associated with ending the current relationship, evaluating and selecting a new vendor, and implementing a new contract? Does the cost of changing vendors outweigh the value of the current contract?
• How long is the contract in effect? How much flexibility exists within the contract so it can continue to meet your needs as your business evolves?

Answering all of these questions requires an in-depth analysis of the contract and vendor relationship. A contract management system, such as ConvergePoint’s Contract Management Software, can help expedite the process and save you money with its renewal management tool:

• Be notified in advance of contracts due to expire or renew, allowing your legal and procurement teams enough time to evaluate value of current contracts, bid out contracts and compare options, opt out of unfavorable contracts and change vendors if warranted.
• Compile real-time, ad hoc reports based on key criteria, so you can quickly analyze contract data and look for potential or missed opportunities.
• Track version history, notes and discussions surrounding a contract. That way, you can easily look back and reference initial questions and concerns your legal team had when the contract was being negotiated and drafted, and evaluate whether those concerns were valid and became warranted.
• Keep full audit trails of each contract for auditing purposes.
• Quickly run targeted searches to find detailed, relevant contract information and help your legal team answer the questions above when evaluating current contracts and vendors.

If your current contract management process is bogged down in inefficiencies, leaving you unable to evaluate your vendors and contracts’ values (and at the mercy of auto-renewing contracts), consider revamping your contract management system. To get you started, take a look at the step-by-step, How-to Guide, which looks at your current processes’ challenges and opportunities, and walks you through laying the groundwork for a more efficient system.