As procurement organizations continue to extend their relationships with existing and new suppliers globally, there is a need to structure the contracts in a way that is mutually beneficial to both organizations. Procurement or Sales contracts between two parties can get very complex over a period of time, especially as the business and legal terms continue to change. To manage these terms in a single contract is extremely challenging and unrealistic. This usually requires creating multiple contracts with the same supplier or different supplier and then structuring them in some kind of a logical hierarchy.

The example below show how contracts can be structured in a multi-level hierarchy.

Buying organization B1 has a global business agreement with a Vendor A. Such an agreement would be the Parent or Base agreement (Level 1) in CLM system.  At Level 2, the buying organization can have participation agreements with a different vendors (B and C) that could either be an affiliate or country specific subsidiary of the vendor organization A in the global business agreement. After establishing such a country specific agreement, it may be required to have a Statement of Work (SOW), containing specific work activities / deliverables for the regional supplier. Fig 1. below is schematic representation of such a three level hierarchy.

In large multi-national organizations such a hierarchy can easily extend up-to four or more levels depending on the complexity of the business processes.

Master agreements and Sub-Agreements in the current SAP Contract Lifecycle Management solution (Wave 8: On-Demand and Version 7.0: On-Premise) give contract managers the ability to structure their contracts in a hierarchy that can extend only up-to 2 levels.

With the upcoming release of SAP CLM 9.0, companies will be able to structure their contracts in a logical hierarchy that can extend to more than two levels. There shall not be a definite limit in terms of the number of levels that can be formed within the hierarchy.

With the new solution, contract managers can link independent master agreements to one another and thus form a hierarchy. The SAP CLM user interface shall allow end users to add a parent master agreement reference to a child master agreement, provided it complies with certain system validations and settings. A document type setting will check whether the master agreement can be included in a hierarchy of agreements.

In Fig 2. above, the ‘Hierarchy’ flag shall indicate whether the master agreement created from this master agreement type can be included in a hierarchy. The ‘Enforce Parent Date Range’ flag indicates that any master agreements created from this type can only have a parent agreement whose validity period (both start and end) is greater than the child agreement

 Once a master agreement is created, contract managers can include it to an existing or new hierarchy of agreements by referencing it to a parent master agreement. The following Fig 3. shows the user interface that shall enable a contract manager to assign a parent reference agreement to any child agreement.

After a hierarchy is established, one can check the hierarchy of agreements using the ‘Hierarchy Report’ (shown in Fig 4.) that can be triggered using the ‘Display Hierarchy’ button.

The SAP CLM solution until Wave 9 release (all preceding releases) has the functionality to create a two level hierarchy in the form of master agreement and sub-agreements. With wave 9, the existing master agreement – sub-agreement functionality shall remain unchanged. However master agreements that have sub-agreements attached to it cannot be used in the formation of hierarchies using the new concept outlined above. In the future SAP shall provide a way for customers to migrate their existing master agreement - sub-agreements objects such that they can be used with the new hierarchy concept.

Customers, who wish to use the new hierarchy concept in SAP CLM 7.0 solution, can do so by leveraging the extension concept in SAP Sourcing / CLM. This can be possible by creating a parent reference extension field on the master agreement. Those master agreements that need to be included in a multi-level hierarchy can then be assigned a parent master agreement in the parent reference extension field. This approach will increase the probability of a smooth migration path from the custom CLM 7.0 hierarchy concept to the standard solution in CLM 9.0.

Thanks and stay tuned for more blogs on upcoming SAP Sourcing / CLM features.

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The purpose of this blog is to provide an overview of the data synchronization feature for legal contract documents authored in SAP CLM. The SAP Contract Lifecycle Management solution allows contract managers to use standard templates and clause libraries to author legal contract documents using Microsoft Word. A legal contract document between a buyer and a supplier dictates the terms and conditions, validity periods, product details etc. It is the contractually binding document between the two parties and can be considered as a combination of unstructured data (i.e. Clause text in MS word) and structured data (business terms, validity period etc. from the master agreement). A master agreement is a meta-data object in SAP Sourcing that contains all the structured data related to the contract and enables contract managers to analyze, audit and measure any other related activity against the original goals of the business deal. It is important from an organization’s perspective that all meta-data related changes in the contract document are always in sync with the structured data in the master agreement.

With SAP CLM 7.0, contract managers can leverage the data synchronization feature to ensure that changes made to the contract document are correctly reflected back in the master agreement. CLM leverages the standard Microsoft ‘Content Control’ capability in MS Word. Content Controls are individual controls (elements) in MS word that can be customized such that they can provide instructional text for the end users. Examples of content control are date picker, text, drop-down list etc. Please refer to the following link to get more details on Content Controls
http://office.microsoft.com/en-us/help/content-controls-HA010030750.aspx
In the following sections, I shall provide details around the system settings and process that shall allow users to utilize the data synchronization feature in CLM

System settings and pre-requisites:
Data synchronization feature requires the following:

1. Contract documents must be authored in SAP CLM using Microsoft Word 2007 or 2010. The feature does not work with contract documents authored in any of the prior MS word versions (Word 2003).

2. Set System Property ‘contractgen’ to ‘TRUE’

3. Enable ‘Content control’ for the contract generation variable which is desired to be synchronized with the data in the master agreement. In the fig below, the ‘End Date’ variable created in the variable library is enabled for content control. So any changes to the ‘End date’ field in the contract document will result in the End date field on the master agreement to be synchronized with the new value.

4. Ensure that the Contract Document template is enabled for generation of contracts using Microsoft Word 2007 with content controls. This is set-up using the two flags on the Contract document template, highlighted in the fig below.

With the above settings done, contract document collaborators who make changes to the contract (In this example, the ‘End date’) and upload a new version of the document to CLM can be certain that the Expiration (End) date field on the master agreement will reflect the changed date in the contract.

In a procurement contract scenario, buyer users can synchronize data changes automatically with the master agreement on uploading new version of a contract document. For contract changes made by the supplier, buyer users can use the ‘Synchronize Data with Agreement’ action on the contract document. Screenshots below show how a change to the ‘Effective date’ field on the contract document can be synchronized back with the corresponding field on the master agreement

1. The fig below shows a master agreement with Effective date set to 10/6/10

2. Supplier user changes the Effective date on the contract from 10/6/10 to 10/8/10. In doing so he uses the Date picker content control in MS Word.

3. After the supplier user uploads the new version of contract with the changed date to CLM, buyer user uses the ‘Synchronize Data with Agreement’ feature to synchronize the Effective dates between the contract and master agreement

4. After synchronization, master agreement effective date is changed to 10/8/10

I hope this blog was helpful to understand the data synchronization feature in SAP CLM. This feature is available as of SAP CLM On-Demand release Wave 7 and On-Premise release version 7.0.
Thanks and stay tuned for more blogs on upcoming features in SAP Sourcing and CLM.