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Breaking Down the Contract Procurement Process

Breaking Down the Contract Procurement Process

Breaking Down the Contract Procurement ProcessLaleh Hassibi
Vice President of Marketing

Every business needs a solid contract procurement process in order to thrive. There's no doing business without buying goods or service. The earlier your organization develops a standard contract procurement process, the better off you’ll be.

Having a robust procurement process will help you discover and partner with those suppliers who are the best fit for your organization. These partnerships will, in turn, drive business success. A strong contract procurement process involves many steps that help you avoid legal issues, get the best deals, and build strong relationships with your suppliers.

Steps of Contract Procurement

After you identify a business need that requires the purchase of goods or services, you can take the following steps in your contract procurement process.

Consider Existing Relationships With Suppliers

The first thing to do is to consider the suppliers with whom you already have a working relationship. You may not need to hunt for a new supplier if you have one that served you well in the past. For example, if you are expanding your business and need office supplies to do so, you may use your current office supplies vendor.

Using a supplier you’re already working with will save you time. You can also move on with the transaction with confidence, especially if they've delivered in the past. You may also be able to negotiate discounts more easily.

Contact Prospective Suppliers and Compare Costs

If you don’t have a supplier already in place, you will need to partner with a new one. Finding the right supplier is an important business decision that can affect your bottom line. Using the wrong supplier can result in higher-than-need be costs. More than that, they might deliver low-quality product or fail to meet agreed delivery times, both of which could have negative ripple effects.

Make a list of prospective suppliers, contact them, analyze their offerings, and compare costs between them. Be aware, however, that while price is vital, it is not the only thing you should consider in choosing a supplier. You should also look at:

  • Supplier capability
  • Quality and reliability
  • Customer service
  • Ease of communication
  • Business ethics
  • Alignment with your goals

Depending on what's important to your organization, the supplier that comes out tops gets the deal.

Negotiate Contract Terms, Including Payment Terms and Type of Contract

After you’ve chosen the suppliers with whom you wish to work, you will need to negotiate contract terms. This step of the procurement process is vital to maximize value and minimize risk. You’ll need to negotiate contractual terms that are favorable to both parties.

Your contract should be a legally binding agreement that covers all the essential terms both parties need to work together. The payment terms (the price, how payment will be made, and when payment is due) should be spelled out, along with  product specifications and delivery terms.

Both parties should also decide on the type of procurement contract: fixed price, cost-reimbursement, or time and materials.

Finalize a Contract for Purchase of Supplies or Services

After negotiating the contractual terms and coming to an agreement with the supplier, the next step in the contract procurement process is to finalize the contract. You want to ensure that the agreement you drafted accurately captures both parties' intentions in clear language. During negotiation, parties may have redlined and renegotiated some terms. Double-check and confirm that those changes are reflected on the final contract draft that the parties will sign.

At this stage of the contracting and procurement process, invite relevant stakeholders to review and approve the contract before sending it out for signing. Ensure that only the contracting parties’ authorized representatives sign the agreement on behalf of the parties, otherwise, the agreement may be invalid.

After signing the agreement, send a copy to all stakeholders who will be involved in contract execution. Be sure to include those who will receive delivery or make payment. so they are aware and prepare to perform their responsibilities.

Compare Invoice to Contractual Terms on Delivery

Once the supplier has delivered the product or performed the service, they’ll present their invoice requesting payment. The invoice usually has the details of the purchase order. Compare the invoice to the terms of the agreement and confirm that the supplier has complied with the contractual terms. This will help avoid situations where the supplier failed to properly fulfill the contract and you didn’t discover it early.

Make Payment and Keep Records

After you confirm the supplier fulfilled their contractual obligation, the next step is to pay them for the products delivered or services rendered. Your agreement will usually state how and when you should pay the supplier. It’s always advisable to pay your supplier within the agreed time.

Ideally, you should pay your supplier once you receive your order. This will help you avoid missing your payment deadline because somebody forgot to pay on time. If you build a reputation as a business that pays its bills early, it will help you forge strong relationships with your suppliers.

Always keep a detailed record of the invoice and any payment you make. It’ll come in handy if there’s any confusion or if the supplier at any time contends that you haven’t paid them.

Standardize Contract Review Procedures for Your Procurement Team

Your procurement team is an integral part of your business. You’ll always need to purchase vital products or services for your business. Having a standard contract review system in place helps your procurement team move quickly will result in substantial cost savings for your business.

A common thing many businesses experiences in procurement is bypassing, which is when an employee purchases a product or service without following standard procedures. Standardizing the contract review process for your procurement contract will help bring transparency into your contract procurement process, and, in turn encourage compliance.

Contract lifecycle management (CLM) software like Lexion will help make your contract review process more effective. Instead of manually reviewing contracts, you can build contract workflows that automate the review process.

Sometimes, contracts lag at the review stage because the people who will review the contract are not even aware of it. Lexion helps you automate the process and send reminders to follow up. Discover how Lexion’s CLM can help your legal team review contracts more efficiently.


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