Page 286 - Accounting Best Practices

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13–14 Create a Contract Terms Database
Exhibit 13.7 (Continued) 275
Termination
Due Date Date Frequency Amount Name Details

None None Semi- $150 Overhead Door Overhead Door
Annual Maintenance
None None Monthly $1,150 Local Daily Janitorial Services
Janitorial
None 10/24/00 Monthly $265 Forklift Maintenance on 3
Specialists Fork-lifts
None 4/30/00 Monthly $29,339 Dean, Struthers, Building Lease
Markson

The implication thus far has been to create a contract terms database from
scratch. However, it is also possible to purchase a commercial off-the-shelf product
from a number of suppliers, such as J.D. Edwards, Oracle, diCarta, PeopleSoft,
Webango, and Siebel Systems. These systems are usually linked to a company’s
enterprise resource planning (ERP) or customer relationship management (CRM)
software, so they can access information stored elsewhere in the company. This
linkage requires a custom-built interface. Depending on the amount of contrac-
tual information to be included in the installed system, one can expect the imple-
mentation of such a system to extend from at least two months up to a year. The
cost of these systems begins at about $150,000 for a small installation and can
easily reach several million dollars for a large company, depending on the number
of users. Some special features make this software worth the price; for example,
the ability to pinpoint contract wording that may impact revenue recognition,
such as acceptance clauses and extended payment terms. This is particularly
valuable in avoiding embarrassing adjustments to the level of revenue recognized
in order to be in compliance with GAAP and SEC rules.
Another feature is a warning indicator when one customer is being offered a
lower price than other customers, which flags other contractual agreements in
which other customers are guaranteed the lowest price offered. By spotting this
problem in advance, a company can avoid having to rebate payments to other
customers in order to bring the prices they paid down to the price level of the
most recent customer contract.
Most of these software packages also offer a library of standard contract
terms, so that a company can extract the boilerplate text it needs to construct new
contracts much more quickly. By doing so, one can also ensure that the same text
is used across all contracts, thereby ensuring a fair degree of uniformity.
Cost: Installation time: