- 94% of business surveyed are looking to make changes to their contracting processes – while 99% are planning to cut contracting costs in the next two years
- Significant proportions of businesses encountering basic process management and technology challenges in contracting
- Largest businesses are managing an average of over 20,000 contracts a year – over 50 per day
LONDON, THURSDAY 1 JULY 2021 – Ninety-four per cent of all organisations are looking to make strategic or tactical changes to how they handle their contracting processes amid pressure to cut costs and deliver successful legal transformations, according to EY.
Over half (56%) of larger UK companies are looking to shake-up their contracting processes by co-sourcing or outsourcing some aspects of the work, with 22% of large companies also looking to make changes to their in-house processes.
EY’s survey of contracting, procurement, and business development professionals and law leaders at 170 leading UK businesses also found that, while the disruption of COVID-19 has contributed to a need to transform contracting, many organisations are already experiencing basic process management and technological challenges.
Nine-in-ten respondents (90%) said that they find it difficult to locate contracts on their systems, while 71% said they do not have the ability to identify which contracts deviate from standard terms. Another 71% don’t monitor obligations in all contracts.
On the process management side, 69% of respondents said they don’t require the use of a template or pre-approved model when drafting a contract, another 69% said they don’t follow a contracting playbook or guidance document, while almost half (49%) said they did not have a defined process for storing contracts after execution.
Notably, 99% of the UK business development professionals surveyed said that inefficiencies in the contracting process were having a direct impact on their business: 77% said that inefficiencies slowed revenue recognition, 55% said they make their organisation more difficult to work with, and 50% said they had resulted in lost business opportunities.
Anup Kollanethu, EY’s UK&I Head of Legal Managed Services, says: “Contracting underpins so many business processes and an organisation’s ability to operate and build relationships. Getting it right is critical to achieving long-term value, but many organisations believe that it’s a process in urgent need of transformation.
“Adding to this pressure is the fact that the operating environment for contracting teams has been challenged by COVID-19 and its supply chain disruptions, work-life balance issues, and the need to manage contractual obligations in a dynamic environment. Beyond that, there’s a need to cut costs: 99% of the business we spoke to are planning to reduce the cost of contracting over the next two years.
“There are some key challenges on this transformation journey which organisations will need to resolve. The key to doing this will be to simplify the contracting process and boost transparency by driving standardisation and consistency end-to-end. What’s important here is clear ownership of the process, a clear rationale for change, and a clear strategy on how and what to deliver.”
Change management and talent are key hurdles as technology presents opportunity for transformation
EY’s research also identified some key challenges for companies looking to make changes to their contracting processes. Sixty-two per cent of respondents raised change management as a hurdle, while 41% were worried about being able to find the right talent, particularly when it comes to technology and process management skills. Almost a third of respondents (29%) said that previous attempts at change had fallen short of expectations, which might affect enthusiasm for further transformation.
The research also found that while 87% of respondents are using e-signature tools, there is limited take-up of other contract creation and analysis technologies. The use of due diligence tools to help find clauses in contracts was the only other approach used by over 50% of respondents. Eighty-three per cent of respondents said they faced challenges with contracting technology.
EY’s research found that, on average, the largest businesses manage over 20,000 contracts every year – equivalent to over 50 a day.
Maniti Barot, EY’s UK&I Legal Solutions Leader, comments: “Having worked with organisations on their contract selection and implementation, the resounding feedback is that contracting technologies in the market are very fragmented and it is challenging to build a technology stack that integrates with the enterprise architecture. However, the key to a successful transformation is less about the specific tools an organisation uses than it is about how it uses the tools and what it set out to achieve with them in the first place.
“Talent is another recurring contracting issue and the skillsets required for contracting transformation are scarce. Running the day-to-day contract to keep the wheels turning and changing the ways of contracting mid-track at the same time is the problem. Often, the issue is that the right work is not being given to the right people. Two-thirds of contracting professionals said they have regular contact with low-value contracts, while over nine-in-ten organisations cite challenges with managing high volumes of low-complexity contracts. This can distract from important tasks and dent morale. Almost two-in-five respondents referenced staff retention difficulties.
“Looking at different operational models or external resources can help optimise workloads. By using the right resource for each task, organisations can reduce risk, increase efficiency, cut costs and improve morale. Companies that are succeeding in their contracting transformation efforts are first and foremost focusing on the experience rather than just using technology to drive down operational costs. They are using analytics to understand behaviour and derive insights, integrating each and every touch point across the contract.”