Avoid the Cardinal Sin of Contract Governance

Author: Jeff Thompson, Executive Director, AwareManager

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Of all the challenges that face commercial property owners and managers, perhaps none are as fraught with the lack of transparency as the task of managing vendor relationships. This challenge is amplified significantly when you are managing a complex operation with multiple vendors across many locations.

These important relationships are governed by contracts, but a contract on its own does little to help property managers keep track of how the expectations outlined in that contract are—or are not—being met. A static set of terms filed away in a folder cannot enhance communication, increase transparency, build accountability or improve performance.

As the owner or manager, you will of course have a say in how the terms of the contract are laid out, but all too often that is as far as your control over the relationship extends, with visibility limited to a monthly review report controlled by the vendor. This is because the work the vendor is contracted to do is often tracked in their own, independent system. This leaves your business vulnerable in several ways.

When you have no control over the data related to your contract work, you have little transparency from which to communicate with vendors, tenants, and other stakeholders about what’s going on in your property or facility. Although the information may be accessible to you via a request to the vendor, there are several key risks in relying on a vendor to provide you with information after the fact:

Building StakeholdersIt may not be timely: By the time you see the information, the data is old. Any issues you might have wanted to address at the time are now either out of your control or unable to be addressed with the level of immediacy you would have liked.

It may not be accurate: While vendors are likely not intentionally providing you with misleading data, there are still multiple occasions for inaccuracies to be introduced between the start of new work and the recording of data concerning that work—and you are not in a position to be able to check the data’s accuracy, because you’re receiving it all after the fact.

It may be subject to manipulation:Without transparency in data collection, it’s much easier for the data to be manipulated before it ever reaches your eyes or even the eyes of your vendor’s management team.

It’s out of context: Even if the data is accurate, correct, and there are no issues of timeliness, it’s still disconnected from other relevant data that could provide valuable insight into your operations. For example: you may have access to vendor performance data, but if it is not connected to a contract’s service level agreements you have no basis to judge if a vendor is performing to the required standards.

Manage your vendor relationshipsIn each of the above cases, you may have little to no ability to mitigate these risks. This lack of transparency drastically reduces a property manager’s ability to address complications at their property and ensure tenant satisfaction. It also makes it difficult for you to determine whether the relationship with your vendors is providing its full potential value.

For many organizations, signed contracts are either filed away before the ink has even had time to dry or abstracted into smaller documents which are then also filed away. In both cases they are only referred to when a problem occurs. That is to say that many property managers make the assumption that contractors and vendors are naturally going to fulfill the requirements of the contract and meet expectations. As a result, there is little or no oversight.

This leads us to the cardinal sin of contract governance: not abstracting the contract into some form of data model that provides the necessary transparency throughout the duration of the contract.

What does this really mean? It means extracting the deliverables stated in the contract and recording them in a software program that tracks what needs to be done, and that this is updated in real time and readily accessible to all relevant stakeholders.

Consider one of the most important aspects of contracts: the specified Service Level Agreements or SLAs. By abstracting them into a data model you now have a way to measure the actual work performed against the agreed-upon terms, and you can raise a red flag when vendors fail to meet agreed service levels. This transforms your contractual agreements from static documents into active and living parts of your data model that you can use to improve vendor performance.

Transform contract from documents to data

In the past the cost of implementing a solution based on a comprehensive data model and leveraging mobile, the cloud, and advanced decision support would have been prohibitively expensive. But the recent mainstreaming of these combined technologies creates the opportunity to do it cost effectively. By using a single, comprehensive data model that includes contracts as part of its structure, you can connect—and compare—the terms of a vendor’s contract to the actual work they complete. You can also view that work in the context of your tenants’ satisfaction via tenant survey ratings, and quickly analyze and report on vendor performance.

The key to making this method of contract governance a success is that the data is not collected after the fact. Rather, it is produced as a byproduct of your vendor’s actions on your behalf, and this information belongs to you. When this information is shared transparently between stakeholders, it also helps eliminate points of stress and streamlines workflow:

  • Vendors can see what work needs to be done.
  • Tenants can submit work requests and give feedback on completed work.
  • You can see results and address exceptions.
  • The information system can provide notifications and escalations automatically.

And all of the data can be available in real time.

The resulting transparency helps to create collaborative rather than confrontational vendor relationships because it not only gives property managers insight into vendor performance, but allows vendors the same common ground to discuss any questions or concerns. If both stakeholders have access to the same information in the same data model, it reduces opportunities for miscommunication and allows problems to be addressed in a more effective and efficient way.

All of this comes back to value: increasing the value of your vendor relationships in turn increases the value of all your other stakeholder relationships, ultimately increasing the value of your property. In addition, the ability to analyze these relationships enables property managers to keep control over costs, such as those for above-contract services.

Integrating the contracts governing key stakeholder relationships into your data model puts you back in control of the data that illustrates those relationships, and enables you to work proactively to improve and resolve issues within those relationships.