Understanding the role of the buy-side contracts in contract management

The term “buy-side contract” is as straightforward as it sounds. Used by businesses to purchase goods and services from external entities, these agreements ensure maximum ROI. The third parties in question can be vendors, contractors, service providers, or even individuals.


Umashankar Natarajan


4 min read

According to a report by Deloitte, over 70% of companies surveyed had a formal procurement process in place.

Buy-side contracts serve to protect the interests of the buyer by setting clear expectations for the seller and providing legal recourse in the event of a breach of contract. A study by Aberdeen Group found that companies with well-defined contract management processes experience 20% more cost savings than those without such processes.

In addition to cost savings, buy-side contracts can also help businesses manage risks. The same study found that companies with effective contract management processes experience a 50% reduction in supply chain risk. 

Who uses Buy-side contracts?

Buy-side contracts are typically the domain of:

• Sourcing
• Procurement
• Contract Management
• Finance
• Project Management
• Supply Chain Management

Business and legal teams use buy-side contract management to collaborate closely with external vendors for the best outcomes. Steps like tendering might precede the buy-side contracting phases in many organizations.

Initiation of buy-side contracts fulfills objectives like:

• Delivery of promised commitments
• Cost optimization
• Mutually beneficial partnerships
• Supplier risk management
• Negotiations in new and existing contracts
• Dealing with market uncertainty
• Audit preparedness
• Fulfill Regulatory mandates
• Meet sustainability requirements

Buy-side contracting workflows

Every buy-side contract requires management throughout its lifecycle to deliver optimal value. This calls for optimal workflows—right from initiation and award of a new contract to its renewal (or termination).
Businesses use the following contract cycle to achieve these objectives:

1. Request for a new contract
2. Contract authoring
3. Negotiations
4. Contract approval
5. Contract execution
6. Obligations management
7. Contract amendments, termination, or renewal

Buy-side contract approval turnarounds can range from days or weeks to months depending on the transaction’s complexity. Typically, lower-value or recurring contracts are simpler (and faster) to execute due to their predictable scope.

Complex deals involve multiple stakeholders, documents, and negotiations. Contract creation to ensure full coverage of scope and commitments can often be a drawn-out process. Subsequent contract reviews, amendments, and drafts create further delays.

Complications like the recent pandemic and its aftermath worsen matters. Research by World Commerce & Contracting (WCC) shows that the average time taken to close contracts doubled between 2019 and 2021.

Benefits of CLM tools in buy-side contract management

Shortening contracting timeframes is the latest priority for most enterprise procurement and legal teams. This is where automation using Contract Lifecycle Management (CLM) software can resolve buy-side contracting issues.
Contract automation delivers benefits like:

• Streamlined workflows (due to lesser manual processes)
• Single source of truth
• Increase in collaboration
• Compliance improvements
• Efficiency maximization

CLM solutions range right from basic contract digitization tools to advanced enterprise offerings. Enterprises will find it worthwhile to evaluate new-age Intelligent CLM solutions. These tools offer advanced digitization, authoring, Artificial Intelligence (AI), and obligations management features.

Built for Intelligent Enterprises

Most businesses require buy-side contracts and “sell-side” contracts. This means thousands of documents and contracting inefficiencies. All these contracts must be available for future reference, compliance, and knowledge management post expiry. An integrated approach to both contracting workflows is essential to achieve success on this front.

Once we consider the commonalities in these contracts, it is shortsighted to invest in just buy-side CLM capabilities. Traditional CLM tools often specialize only on the buy-side, so it is safe to give those a miss.

New-age CLM solutions with end-to-end contract management features are options worth evaluating. These utilize a unified repository for visibility, instant retrieval, and management of all contract types. Standardized contract templates and automatic clause suggestions in these tools accelerate the authoring of compliant contracts. In addition to reducing contract Turnaround Time (TAT), CLM platforms also reduce procurement risks.

Enterprises can streamline buy-side and sell-side contracting workflows using intelligent CLM solutions like SimpliContract. For instance, SimpliContract CLM simplifies buy-side contracting with:

• End-to-end management—right from requests to renewals
• Role-based approval, purchase, and payment capabilities
• Self-service wizards and AI-driven Contract Authoring  
• Faster reviews using collaborative features like chat
• Cloud-based contract repository with granular access controls
• Obligation tracking and management using AI
• Detailed reporting capabilities
• Instant retrieval of contract values
• Highly customizable dashboards

The unique features that Intelligent CLM brings to businesses are illustrated in Figure 1: CLM capabilities across the contract lifecycle.
Figure 1: CLM capabilities across the contract lifecycle

Smarter possibilities for the CPO

CLM tools offer detailed reports and dashboards for the Chief Procurement Officer (CPO). It empowers decision-makers with actionable data. The inclusion of AI and Natural Language Processing (NLP) adds further relevance to this data.

Identification of purchasing patterns using transaction analysis in CLM tools is a case in point. This enables strategic procurement decisions. Ready access to dashboards that track payment terms, exceptions, and liabilities mitigates unforeseen contractual risks. Automated alerts track every milestone, obligation, and renewal to avoid penalties.

CLM solutions offer a comprehensive set of buy-side data and reports. For example, procurement leaders can access insights by category, procurement types, or exception volumes. These can give actionable data about off-contract buying. In-depth consumption reports provide visibility to match contracted values vis-a-vis actual utilization.

Insights around contract TAT identify reasons behind delays and scope for improvements. For instance, intelligent CLM solutions can identify inefficient, repetitive tasks that are ideal for automation. Or it can analyze workflow allocation within the team to determine bottlenecks. These optimize the underwriting process significantly.

AI-based vendor evaluation and management makes it easier for procurement leaders to benchmark commercial performance and compliance. Tracking of actual delivery against Service Level Agreements (SLA) is a case in point. It highlights performance inconsistencies and contract renewal suitability. AI can also identify negotiation opportunities to unlock buy-side opportunities like credits and discounts.

Advanced CLM solutions offer seamless integration with procurement tools, business applications, ERP, and CRM systems. These ensure a consistent flow of vendor and contract information across systems for standardized data views. Procurement personnel can directly initiate purchasing contracts from these applications.

Features like detailed spend analysis use Intelligent CLM’s integration with procure-to-pay (P2P) and source-to-pay (S2P) solutions. Or CLM tools can be integrated with eSignature applications for secure and speedy contract signoffs. Integration with Microsoft Word to improve self-service requests and authoring is of great utility to every business user. 

If you are a procurement professional at a mid-size or enterprise corporation, you must be aware that poor contract management can directly impact your organization's bottom line. 

Remember, a carefully-drafted buy-side contract is not just a legal document  it's a strategic investment in the long-term health and profitability of your business.      

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