How Contract Intelligence Can Help IT and Professional Services Companies Manage Risk in 2022

January 12, 2022 Elizabeth Flammini

Today, information technology (IT) and professional services companies operate in a commercial environment defined by dispersed operations, amplified customer and employee expectations, and increased security needs. They need to be able to deliver for clients anywhere.

With these trends come imperatives to move faster, realize maximum value across all commercial activities, and proactively track customer obligations and fulfillment. Each of these imperatives carries with it unique risks, however. The global nature of business compounds these risks in the IT and professional services industry.

The Role of Contracts

Because of the global nature of this risk, contracting plays such a critical role in the IT and professional services industry. Contracts define what companies do, the obligations they owe, and the obligations they are owed. As such, contracts represent a kind of double-edged sword that can create risk and insulate from it since contracts are the linchpin for all such business relationships.

Most client and provider relationships in the IT and professional services industry are governed by master service agreements (MSAs), which outline all key information for the relationship, including business units involved, customer and legal entity details, contract value, service, and payment and pricing terms.

Statements of work (SOWs) define projects operating under these MSAs. SOWs state performance benchmarks the provider commits to reaching throughout the contract's lifecycle.

Similarly, an engagement letter (EL) and general business terms (GBT) are the common agreement types used for engagements related to tax, audit, and assurance projects. In other words, the entire commercial motion of these service providers is dictated by an ecosystem of contracts, with information that must flow down from the top-line MSA or EL to delivery documents to ensure all contractual obligations are fulfilled.

Risk can bubble up from almost anywhere in this process. Take, for example, the case of a major IT services provider that, because of poor contract visibility, performed work against an SOW that had expired. When the error was discovered, the company determined that it had done $1.5 million worth of work that could not be billed for—a severe blow to its bottom line.

While this is one example of a contract-related error, professional services providers are even more vulnerable to risks associated with missed contractual obligations and—due to the geographically diverse nature of the industry—regulatory issues based on which jurisdiction they are operating in.

Increased client expectations have resulted in MSAs with exacting service level agreements (SLAs) that carry critical obligations. Complete visibility into all these obligations is necessary to avoid the risk of contractual penalties and a damaged business reputation.

For providers who operate in multiple countries, it is vital that all contracts include the proper clauses to avoid regulatory penalties. A prime example of this is the General Data Protection Regulation (GDPR) privacy legislation in the European Union (EU). Companies could expose themselves to huge fines without contract language that flows proper data-handling provisions to partners and subcontractors.

And because a client-focused business often requires signing agreements on third-party paper, IT and professional services providers have the additional challenge of identifying these risks in contract templates and clauses that originate outside of their own legal department.

The Need for Contract Lifecycle Management

Because of these pressing risks, leading IT and professional services companies are deploying advanced contract lifecycle management (CLM) solutions that provide enterprise contract risk management.

An organization-wide CLM solution establishes a rules-driven contract system that reduces risk by ensuring governance and compliance while allowing self-service contracting to reduce overhead and improve cycle times.

CLM allows organizations to turn their contract repositories into the single source of truth for business risk, compliance, and performance.

With a central CLM, all stakeholders have appropriate access to the contracts system, providing unprecedented visibility and streamlined review processes—even between departments.

Bulk actions can be taken on contract templates and clauses to help companies stay compliant.

And after a contract is executed, organizations can use the system to track contract performance, including a global view of SLA fulfillment with a single client or across the business.

How Icertis Contract Intelligence Can Help

Icertis Contract Intelligence (ICI) is advanced CLM that gives a company organization-wide visibility into its contracts, providing a single source of truth for all its client, supplier, and vendor relationships.

ICI for IT & Professional Services allows companies to greatly reduce risks associated with missed contract obligations and ensures commercial compliance by enabling businesses to enforce terms and prices—either from the ICI platform itself or through integrations into other systems. The platform also allows tracking of spending against the contract and easy auditability for compliance reporting and SOW preparation.

IT consulting company Cognizant saw firsthand how ICI could help reduce risk and improve business performance.

Cognizant faced serious sell-side obligation management challenges. They took the proactive step of implementing the ICI platform and saw rapid and meaningful results. Cognizant digitized contracts controlling 82 percent of its revenue. The company now enjoys 94 percent compliance of obligations included in contracts housed on the ICI platform.

Conclusion

Information technology and professional services is a contract-intensive industry. Leaving contracts to manual processes means exposing your IT or professional services company to too much risk, be it missed contract obligations, regulatory noncompliance, or operational errors such as performing work outside the scope of a contract that may be non-billable.

With CLM technology like ICI for IT & Professional Services, you can greatly reduce your risk exposure while improving governance and compliance. For more insights on how advanced contract lifecycle management can benefit your business, access a copy of our free industry overview eBook, Contract Intelligence for IT & Professional Services, below.