Navigating the Complexities of AMS Contracting: Six Critical Considerations for 2024

By Srikanth Karunam

Effectively handling contracts for Application Management Services (AMS) can be a complex and involved exercise for enterprises. The failure to capture business requirements and translate them into a well-defined scope of agreement can result in an unsuitable commercial model that may lead to disputes and grievances after the contract is awarded.

In 2024, capturing precise business requirements and effectively translating them is essential to ensure a well-defined scope of agreement. By aligning technical teams from different business divisions and fostering a shared vocabulary, organizations can separate “must have” from “nice to have” requirements and minimize misunderstandings.

For organizations aiming to capitalize on the benefits of AMS, such as cost efficiencies, enhanced expertise, and continuous support, it’s crucial to remain attentive to various contractual considerations. These include:

Enhanced engagement

Timely and active engagement is crucial to maximize the cost-effectiveness and overall value of contracting. Prompt involvement of all relevant teams will minimize setbacks, revisions, and suboptimal contractual terms. Efficient engagement practices involve clearly defined processes and guiding legal and commercial terminologies to technical and business unit personnel participating in the AMS process. Additionally, involving stakeholders responsible for final approval early on preserves the value of a deal. This best practice is particularly beneficial for enterprises that use standardized contract templates.

Effective negotiation timelines

While negotiations can sometimes be complex, it is vital to approach them with an understanding that reaching a favourable agreement takes time. By allowing for internal stakeholder alignment and open dialogue, organizations can establish a solid foundation for successful negotiations. Instead of viewing negotiations as a ‘battle of forms,’ organizations can adopt a collaborative approach. By seeking common ground and aligning standards and templates, parties can work together to create mutually beneficial agreements that address all concerns.

Holistic approach to terms and risks

Neglecting to take a holistic view of risk management can lead to misplaced emphasis on specific terms and potential hurdles. Organizations can create contracts that comprehensively and practically address risks by considering the overall risk landscape and focusing on effective risk management strategies.

Rather than relying on rigid contract templates, organizations can benefit from tailoring agreements to their specific needs. By customizing 2024 contracts to address industry-specific risks and requirements, parties can ensure that the deal suits their unique circumstances well. And maintaining open lines of communication throughout the negotiation process is crucial.

Challenges in understanding contracts

AMS contracts establish an agreement between business users and the technology firms they engage in for application management. Yet, in most cases, these parties need help to grasp the legal terminology that formal contracts are replete with. The difficulty stems from the fact that contract templates are generally not tailored to cater to end users. Instead, they adhere to legal conventions developed by lawyers over decades, often including potential litigation situations. This complexity undermines the practical utility of contracts in business communication. When the wealth of information within an agreement is difficult to access and interpret, it can lead to misunderstandings and disputes.

Underutilization of contract technology

Documenting and reviewing contracts needs to be more cohesive, involving multiple stakeholders. Using siloed business systems across different functional levels often leads to the dispersion of AMS contract-related data across several locations. As a result, the contract lifecycle lacks a singular point of accountability. Additionally, a substantial number of companies have yet to adopt software systems that facilitate essential tasks such as:

  • Generating management reports
  • Customizing contracts from standard templates
  • Integrating contracts with other applications such as ERP and account systems
  • Automating risk assessments
  • Defining workflows for non-standard terms or agreements

The limited use of technology in managing contract lifecycle obstructs proper agreement implementation and adversely affects value retention.

Lack of flexibility

The COVID-19 pandemic and subsequent geopolitical tensions have underscored the constrained avenues available to companies for implementing change. The capacity to incorporate modifications into a contract has conventionally been regarded as a risky endeavor. As a result, unforeseen challenges are often dealt with through informal means, inadvertently resulting in overlooked prospects for operational streamlining or cost reduction.

Seeking solutions

With AMS contracting in 2024, businesses can leverage innovative solutions to maximize their success. Adopting automation-powered workflows accelerates the entire contracting process, from execution requests to reducing the time it takes to get applications under management.

Organizations have minimized the risk of human contract creation and management errors. It ensures that all tasks are performed consistently and accurately, reducing the potential for costly mistakes and subsequently leading to lowered operational costs by reducing the need for manual oversight. This allows organizations to allocate resources more efficiently.

As businesses grow and their AMS needs to expand, automation can quickly adapt to increased workloads without proportionally increasing staffing requirements, making scalability more manageable. It consistently ensures security measures and compliance standards, reducing the risk of data breaches and ensuring that contracts adhere to regulatory requirements. Furthermore, automation provides real-time insights into the contracting process, offering transparency and control over all stages. This visibility is invaluable for monitoring progress and identifying bottlenecks, enabling seamless communication and document sharing.

Faster, error-free, and more responsive AMS contracting processes can improve customer satisfaction in 2024, as businesses can quickly meet their clients’ needs.

(The author is Srikanth Karunam, Sr. Program Manager, YASH Technologies, and the views expressed in this article are his own)