August 30 by Zack Alspaugh

On this blog we consistently talk about the benefits of effective contract management – reduced risk, increased compliance, accelerated deals, time back in the corporate counsel’s day – the list goes on. In this particular case, we want to point out an instance where poor contract management had a drastically negative impact.

An Embarrassing Audit in Singapore

Earlier this summer the Auditor-General’s Office (AGO) of Singapore made a startling discovery. Their government agencies had been hemorrhaging money, overpaying extravagant amounts on routine services and failing to collect on amounts owed. The culprit, gaps and lapses in contract management. The 66-page report released in July detailed the financial gaffs which included, but was not limited to:

• Overpaying for grass-cutting services by S$200,000
• Forgoing S$6 million in owed rental fees
• Under-collecting S$5 million in concessionary port dues

Among many other missteps and mishandlings, the Ministry of Education (MOE) is attempting to reign in 30 outstanding school construction contracts totaling S$13.61 of services and determine what has been paid, what is still owed and whether the payments issued were done in accordance to contract provisions.

Despite the current and embarrassing state of affairs, Auditor General Willie Tan Yoke Meng noted that “the entities audited by AGO took the audit observations seriously and had indicated that they were committed to rectifying the lapses and putting in place measures to prevent future occurrence.”


Gaps in Contract Management Lead to Gaps in Revenue

Contracts are the roadmap to your business deals. They define what someone is paying you, how long they’ll be paying you, if you are responsible for replacing broken products, when the customer is free to leave and much more. The clauses within contracts are inundated with business-critical legal terms. Start and end dates, payment terms, service levels, customer support levels, warranty periods and agreement values are all conveyed in your contracts. Any mistakes in this process can increase your liability and have a significant impact on your bottom line.

Simply put, when you’re trying to make that cheddar, you better have good visibility into your agreements or you’ll to end up with swiss cheese instead.

Making Contract Management a Priority

Many companies (and sometimes countries) treat contract management as an afterthought. It’s an operational challenge that must be addressed in response only when it is necessary. So senior-level executives and decision makers often don’t pay attention or prioritize it.

But contracts define the operations of the whole business. Poor management of contracts creates significant costs and lost opportunities, as well as risks that may only reveal themselves in a dramatic (and painful) way – just ask Singapore.


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