The management of IT and Telecom contracts is essential for any company, as it includes resources that optimize productivity, that guarantee information and connections security and integrated communications. Best corporate governance practices require a manager who is attentive to these contracts and their life cycles.
Managing contracts includes:
– Tracking their history prevent bottlenecks;
– Controlling expiration dates and renewals;
– Identifying the need for necessary adjustments over time;
– Formalizing and coordinating the communication between parties.
It is a job that requires detailed control, with a lot of information to be managed, which requires a specialized tool, with an easy to access user-friendly interface, configurable for the needs of the corporation and capable of sending alerts at the main workflow points.
Managing contracts is not simply knowing in general what was contracted and when it starts and ends. It is having its key obligations, scope and SLAs with easy day to day visibility for the IT area or for the area taking care of these services and contracts.
Where it all starts
First of all, it is necessary to understand the function of a contract in a commercial transaction, be it the purchase and sale of products or the provision services. This document is the legal instrument that administratively and legally establishes the relationship between two parties as well as their obligations and rights of the contracting party and the contracted party. In addition it establishes penalties if any of the parties fails to comply with its clauses.
It is common for commercial agreements to be established through rigid standard subscription contracts, with almost no possibility of customization. However, most contracts have flexible SLAs which can be tailored to the company’s needs.
After defining SLAs, executing the contract and starting the respective services, it is time to register it in a system that centralizes all the information and that enables consultations when necessary. The contracted scope, service level and payments are directly related. One should only pay for what was delivered based on the contract.
Contract life cycle
Managing a contract includes the pre-contracting and contracting phase, its pre-execution and execution, and finally its termination or its renewal.
The pre-contracting phase occurs when the need to be supplied is identified. During this stage, the technical requirements of the contract’s scope as well as its administrative procedures are defined – what is necessary to authorize the contract, the requirements for certificates to be delivered by the suppliers, among others. In general terms, a single document, often a RFP, outlines what the contracting party needs and its respective desired conditions and rules.
Once the pre-contracting stage is completed, the contract itself is executed after the negotiation of values and conditions is concluded. It is important that technical, financial and legal obligations of the contractor and the contracting party be formalized in detail.
The execution phase should start on three fronts: technical – when the implementation activities begin; administrative – storing and recording what was contracted and agreed upon; financial – including contract payments in the accounts payable flow.
The efficient management of contracts, which must cover the company’s needs within the budget, include:
– Entering contract information in the system, including SLAs;
– System parameterization with usage demand;
– Periodic monitoring of service quality;
– Formalization of service failures by incident;
– Registration of occurrences according to the supplier’s standard forms;
– Monitoring discounts for the hours or days without service;
– Supplier activation when alerts that contract terms are approaching, starting new negotiations with the same supplier or via RFP for new ones.
A contract termination or renegotiation must take place shortly before the end of its term, considering the possibility of renewal or the search for a new supplier. This definition will occur due to the recurrence of the initial needs, whether compliance with commercial agreements was observed or, more often, for price reductions and resources optimization.
Critical contracts for the company. How to manage them?
Extremely critical contracts are those that govern services directly related to productivity and execution of the company’s business. Services that, if not fully functional, have a significant operational and financial impact on the contracting party.
It is important to monitor compliance with established service levels. This monitoring, make it possible for the company to request credits for what was not delivered in part or in full and which was improperly charged.
The amounts to be recovered for non-compliance depend on how the contract was negotiated. If it is an end-consumer type contract, the amount paid for the undelivered service can be refunded. Depending on local consumer law and other regulations some additional fines may also be applied.
This work to recover unduly charged values is possible with good contract management, supported by a specialized system, calls documentation and SLA non-compliance formalization via a tool that records occurrences, that as a last resource can serve as evidence in legal actions.
Top SLA offenders for IT and Telecom
The contracts that generate the most value in revenue recovery are normally:
– Website hosting agreement (hosting);
– Virtual store agreement;
– Means of payment agreement;
– Telecom and data services contracts: Internet provision, in particular, often generates a large number of periods without service or partial service, affecting services with specific SLAs;
– Help desk, service desk, support or telemarketing contracts, as well as contracts that require connectivity and full-time availability of services. In those cases the measurement of availability versus the periods of unavailability is essential.
A thorough contract management involves the negotiation of a good contract, good monitoring and control of SLA compliance, collection of recoverable revenues and related negotiations, which in general are conducted in a friendly manner, demonstrating maturity in the relationship between companies and their suppliers.
Good contract management preserves the long-term relationship with suppliers, without the need of contract termination. It leads to the improvement of service levels and the search for indicators of excellence, even in the presence of operational problems and the recovery of charges unduly invoiced to the client.