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Getting the organization to care about contracts

Last week, I wrote on the topic 'If contracts are so important, why do so few people care?'

Although my focus was on outsourcing deals, the comment could equally well apply to contracts as a whole. Essentially, my point was that although there is wide acceptance within organizations that a contract is necessary, there is limited consensus over its exact purpose and few considerations over its broader business impact.  This general lack of interest is reflected in IACCM’s 2011 research finding that only 8% of organizations see themselves as having a strategy for contracting.

In my previous article, I observed that one of the consequences of this situation is that contracts (and those who are charged with their creation and management) are viewed by many in a relatively negative light.  They are seen primarily as instruments for risk allocation, often indulging in lengthy and apparently obtuse points of law and the apportionment of pain when things go wrong. This attitude tends to have rather self-fulfilling consequences; in particular, contracts and legal personnel are often not involved sufficiently early in the process and the resultant contracts may be poorly structured, hastily negotiated or incomplete.

As a brief case-study, I am currently involved in a contract worth some $4 billion. IACCM has been asked to run a ‘relational contracting workshop’ to assist the parties in establishing a governance and management framework that generates more collaborative behaviors. I spoke recently with the project owner to discuss objectives and approach. During the conversation, he warned me that one challenge – perhaps the biggest – would be to overcome the opposition of many stakeholders, who believe that the contract and its management should be all about ‘wielding a stick’. He went on to explain that his reason for asking IACCM to conduct the workshop is because he believes we are the only people with the ‘compelling research and examples’ that can help him overcome these attitudes.

The point behind this story is that it is not of course the contract that is causing contention. It is the people within the organization who see suppliers (and often customers) as ‘the enemy’ and then seek to use the contract and the contracting process as a weapon. Their dismissal of the idea that collaboration is necessary and their refusal to consider contract terms and structures that focus on value delivery and positive incentives ultimately condemns us to many deals and projects that either fail or yield disappointing results.

Of course, the nice thing with that disappointment is that it confirms the cynicism that was actually its cause and adds to the resistance to change.

So what should be done? In my opinion, senior management from around the business must start to revisit the question ‘what is the purpose of contracts?’ and from there, they need to consider a strategy for contracting that aligns with their wider business goals. Without this, contracts will continue to undermine business opportunities and deliver less than optimal results.

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