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IACCM - International Association for Contract & Commercial Management Contracting Excellence Magazine
 

Contracting Excellence Magazine - Mar 2011

 
 

 

Demonstrating Our Value to the Business

 
Harvard Business School’s ‘Working Knowledge’ recently released a list of its ‘most popular articles and research papers of the decade’ (2001 – 2010). The list is a powerful reinforcement of the issues that are being tackled by IACCM and its worldwide professional membership. This brief summary focuses on the top five – and briefly explains how they relate to the IACCM agenda and the role of our community.
 
 

Creating a Positive Professional Image is number one on the list – and clearly of great relevance to those in the world of contracting, legal and procurement. Although the professional status of these groups is at very different levels, they all struggle with mixed images among users of their services. Tackling these ‘negative images’ is of great importance to each of us because it has direct impact on the value we can offer and the status we achieve. It is a challenge that lies at the heart of IACCM’s purpose and support to its members, as we move from images of ‘control and prevention’ to those of ‘value and enablement’.

Music Downloads: Pirates-or Customers? attracted the second-largest readership and is interesting to the world of contracting because it challenges many of our underlying assumptions about intellectual property. Most of us have been taught to protect IP, yet the research revealed in this article shows that such an assumption may be wrong. It is an important finding because as professionals, we must be ready to challenge our long-held beliefs, many of which have no objective data in their support. Professionals and students who participate in IACCM programs will be familiar with the challenging questions and ideas that help distinguish them from their non-IACCM colleagues.

A Balanced Scorecard Approach to Measure Customer Profitability tackles the question of economic results from our trading relationships. The question of economic outcome should lie at the heart of our contract and relationship strategies and operations. The interest in this topic confirms its importance, yet it is an area in which most contract negotiators and managers – as well as lawyers and procurement staff – lack appropriate levels of expertise. The economics of contracting is one of the key issues tackled by IACCM in its training and research programs.

Marketing Your Way Through a Recession has been high on every executive list in recent times – and key to success is to offer differentiated capabilities and commitments. Our contracts are therefore fundamental to a flourishing business, to ensure that commitments are realistic, but that they also align with the needs of our target markets. Today’s innovation is frequently achieved through distinctive commercial terms, not only product features or functions. The IACCM community increasingly contributes to market understanding and research through its knowledge of customer aspirations and competitive offerings.

Understanding Users of Social Networks is one of several articles related to the impacts of social media. As the leader in professional ‘social networking’, IACCM has embraced the challenges and opportunities of this networked world. We help our members grasp the power and opportunities that come from social networks, but also the threats they represent. As our tumultuous world is showing us, the immediacy of these new methods of communication is transforming what we do and how we do it. IACCM is at the forefront when it comes to explaining the implications of these changes to our professional community – and in putting the benefits of these tools at your disposal, through networked learning, on –demand research and global advisory services.

 
 

IACCM Americas Conference Round-Up

 
This month saw the start of the IACCM 2011 conference series, with IACCM Americas running in Orlando from March 1st - 3rd. The event focused on outsourcing and complex services and in this summary, delegate Laura Williams shares her overview of the speaker presentations.
 
 

The theme of this year’s IACCM Americas Conference was ‘Partnering for Performance’. Speaker after speaker confirmed the importance of contracting to overall business results, focusing on the outcome and the value of partnering externally with buyers, suppliers and other third parties, as well as internally between legal, the contracts management organization, IT, and the relevant business units.

The conference confirmed that the goal of contracting should be to enable all parties to achieve success; adversarial approaches that focus on risk allocation and the consequences of failure typically lead to disappointing results. The presenters emphasized that the purpose of contracting is to agree on a desired outcome and to establish an effective governance process to facilitate this.

 Presentation summaries follow:

Tim Cummins, IACCM CEO, opened the conference with a presentation that described why business has become more complex and the implications this has for contracts and commercial practices and practitioners. He highlighted the ‘big themes’ that are on the executive agenda and suggested that these represent a major opportunity for the contracts and legal expert – or a significant threat if we fail to respond. Tim proposed that we must increase our focus on the management of risk, but that this demands a new approach through contract terms and procedures that reduce the probability of risk events damaging results or outcomes, rather than today’s focus on the allocation of blame when things go wrong.

Craig Silliman, Senior Vice President & General Counsel, Verizon Business & Verizon Telecom, highlighted ‘an inherent conflict’ between standard forms of contract and a healthy business relationship. He suggested that standard terms typically reflect the lack of any deep relationship. Craig discussed achieving the right balance between penalties and incentives, and the overall economics of contracting and keeping focus on the real purpose of the contract. He made extensive reference to IACCM research on the most frequently negotiated terms and discussed the obstacles to change from adversarial negotiations over risk allocation, to a more constructive focus on the management of the relationship. He proposed a number of steps that organizations can take to improve the quality of their contracting.

Daniel Mahlebashian, Chief Contracting Officer and Global Director Purchasing, IT, General Motors Company, who discussed the restructure of GM’s contracting processes following the recent bankruptcy of GM and how this has led to a stronger focus on supplier relationships and outcomes. Dan stressed the need to allow suppliers to innovate and to achieve a mutual trust with suppliers. In response to a question from the audience, Dan discussed how the automation of GM’s IT contracts and procedures proved invaluable in the audit and business recovery. He also acknowledged the invaluable role performed by IACCM in causing his regular re-evaluation of contract rules and practices, to ensure GM’s sustained competitiveness and attraction as a business partner.

Keld Jensen, CEO, MarketWatch Centre for Negotiation A/S, presented on creating a SMARTnership™ with suppliers. He emphasized the importance of the “Golden Rule” to always do unto others what you would have them do to you. He spoke to research findings that trust, which is critical to good relationships, has been decreasing among partners, resulting in a world “trust crisis”. Interestingly, the United States and Latin America are traditionally relatively ‘low trust’ societies – and in the US, recent years have seen a substantial decline in trust levels. This has a marked impact on contract and negotiation practices. Keld also emphasized that it is the person/people behind the transaction that results in success, not the company. Success depends on trust, likeability and credibility. Keld spoke to the “15/85 rule” – 15 percent of success is formal education, technical skills, and the like and 85% of success is trust, likeability and credibility.

Tim Minahan, SVP Marketing, Ariba, spoke to Ariba’s contract lifecycle management system’s recent partnership with Salesforce.com. Tim invited Tim Cummins to join him in his presentation and both addressed the current misalignment between contact management professionals, sales and legal, and how that misalignment results in unintended and unnecessary bottlenecks that delay or prevent the closing of transactions. They also reflected on the concerns expressed by both legal and contract management over the expectations that Sales often creates with customers. Both emphasized the importance of early and ongoing collaboration, internal and external, and unveiled recent survey results showing that automation results in substantial improvements in communication, timing of involvement and the visibility of progress and commitments. Discussions also included how to define the contract and the role of a contract, to increase understanding of its value across all parts of the business.

 MC McNeill, Vice President, IBM Global Services, spoke to linking contract management with product lifecycle management, and shared IBM’s contracting mission statement of creating, facilitating and documenting business understandings for customers, partners and suppliers. Ms. McNeill described IBM’s implementation of its internal automation contracting process “Agreements on Demand”, which has facilitated self-service within the business units, while maintaining a high degree of central visibility and strategic control. She also introduced three current topics that are high on the management agenda at IBM and where the contracts and legal staff are playing a major role in policy definition.

 Margaret Smith, Executive Director, Worldwide Contract Management, Accenture, and Roselle Harde, Americas Lead, Contract Management gave an inspiring presentation on contracting processes and models, market trends and expectations, and organizational design, roles and alignment. They described the growth in status and contribution of the Contract Management function at Accenture and the recent decision to merge with Legal, to improve synergies throughout the process.

 Lucy Bassli, Senior Attorney, Legal and Corporate Affairs, Microsoft Corporation, ended Day Two with a dynamic presentation about reassessing risks in contracts, and drawing a clear line between legal and business advice. Ms. Bassli also commented on Microsoft’s relatively recent global outsourcing division and how this has led to outsourcing of many contract-related activities, such as the creation of Master Outsourcing Services Agreements and Statements of Work, plus service level management.

 Dalip Raheja, CEO of the MPower Group, spoke on the theme ‘Strategic Sourcing Is Dead’. He made a very credible argument that the fundamental values that underpin today’s sourcing practices are not sustainable. He revealed data that shows the steady reduction of achievable savings and suggested that sourcing and procurement groups must reinvent themselves, with particular focus on improved business and market intelligence. They must demonstrate increased value in delivering business goals – and to do that, they must start to appreciate what executive management is seeking to achieve and then design their services accordingly.

 Kate Vitasek, Professor at the University of Tennessee and leading author, gave insights to extensive research on outsourcing contracts and relationships. Kate observed that ‘We talk about partnering, but we buy transactions’. She highlighted how organizations must focus on objectives and set goals and targets accordingly. Successful outcomes are those which concentrate on what is to be done, rather than how it is to be done. Kate outlined some key principles for successful contracting, including the fact that transactional contracting stifles innovation and undermines the value that can be achieved.

 Claude Marais, Managing Director of Governance Services at TPI, and Steve Addante, Division CIO at Walgreens, discussed the working relationship between their organizations in managing key outsourcing agreements. They set out a compelling argument for the value provided by rigorous supplier measurements – not simply due to service level, but because of the lack of quality in invoicing and contract management by suppliers.

 Todd Snelgrove, Global Manager of Customer Value at SKF Group, described how SKF has focused on distinguishing between price and cost. The company seeks to compete on total cost, rather than purchase price, and through this approach has delivered increased customer value and enhanced its competitiveness. Todd described how this has led to far greater internal integration between sales and procurement and is also dramatically altering the way that SKF interfaces with its suppliers.

 Craig Guarente, Vice President, Global Contracts, Oracle Corporation, started off the morning with a discussion on reengineering contract management skills and competencies in a time of continuous change. Craig discussed how best to restructure the organizational design for better contracting to achieve shorter cycle times while balancing speed with appropriate review to ensure quality of control is not sacrificed. Craig spoke to how best to manage skills and implement performance metrics in a changing environment.

 Diane Carco, President, Swingtide Inc., and Richard Sandler, Vice President, MSS Contracts, CSC, teamed up to present on best practices in contract exit strategies from the buyer’s view and the customer’s view, respectively. The theme was to manage and nurture contractual relationships when planning exit strategies. The duo also spoke to post-award contracting and relationship management, and emphasized the critical role of managing relationships.

 Jon Hughes, Partner, Vantage Partners, presented on the importance of contract and relationship management, and how these two areas are intertwined. He posed the question, “Will contract management and relationship management converge?” He discussed the selection of suppliers and customers, and discussed what selection criteria should look like. Jon emphasized the importance of the contract and its negotiation to the ensuing relationship and provided extensive research data showing the value that is typically lost when relationships are not collaborative.

 After the morning networking and refreshment break, Michel Gahard, Legal and Corporate Affairs, Microsoft Corporation, addressed global contracting standards, and posed the question, “Can the technology industry simplify its contracting?” Michel spoke to the impact of the economic volatility on contracting processes and models, as well as the potential benefits of reengineering contracting standards. He outlined the project that he has led on behalf of IACCM, comparing the standard agreements (buy-side and sell-side) of major technology providers. This analysis has resulted in the development of a set of model terms (sell side) and will shortly release a buy-side version. The objective of this activity is to shorten cycle times by avoiding or reducing time spent on repetitive and predictable negotiation issues. Michel urged the audience to consider themselves ‘ a movement for change’.

 Peter Allen, President, Global Sales & Marketing, CSC, covered what is becoming an increasingly “hot topic” – Cloud Computing, and the changing role of the CIO in the management of supplier networks. Peter set out some basic principles related to ‘cloud’, including the misconceptions in the market today.

 Dave Barton, Director of Contracts, Agilent Technologies, presented in an entertaining fashion and engaged the audience by starting out with the question, “What three things do you look for in a consultant?” The purpose of the question was to inspire audience collaboration and experiences. The partnership and relationship management theme continued with his asking the audience to identify certain drummers, whose photos were part of his slides. Some drummers were successful, and some not, because of relationships within the band and with other people. Dave spoke to how best to balance contracting quality and performance, and how to best build contract and commercial competency across the organization through addressing and managing change. He emphasized our roles as the agents of change.

 The final session was led by IACCM Board Members and Senior Staff. The panel addressed the leadership challenge and the journey to excellence in contracting. Diane Homolak, Director for Americas Legal Quality and Operations, Hewlett-Packard, and the other three panel members, discussed the challenges and opportunities of raising the status of contracts and contracting professionals. The panel addressed current research and how organizations can benefit from that research. The panel asked the audience to think about skills development and where to turn to for the proper training of a contracting professional.

Sign up now for the IACCM EMEA Conference, May 9 - 11, in Amsterdam, at www.iaccm.com/emea.

 
 


 

What Drives Collaboration In Collaborative Business Relationships?

 
Few need convincing that a collaborative business relationship is what is required to extract mutual and incremental benefit from long-term, high value commercial transactions. Collaborating in a business context means helping each other derive more business value. Rather than bickering about what share of the existing business benefit pie the customer and the supplier are to receive, a collaborative business relationship facilitates the creation of incremental business value to mutual benefit. Ian Deeks, Ten Squared Limited
 
 

Few need convincing that a collaborative business relationship is what is required to extract mutual and incremental benefit from long-term, high value commercial transactions. Collaborating in a business context means helping each other derive more business value. Rather than bickering about what share of the existing business benefit pie the customer and the supplier are to receive, a collaborative business relationship facilitates the creation of incremental business value to mutual benefit.

Furthermore, the recent publication of the BS11000 standard framework for Collaborative Business Relationships provides the building blocks to achieve such a relationship. What is missing is an understanding of the disciplines (or functions) behind collaborative business relationships, how they inter-relate and which function drives collaboration.

In order to achieve a collaborative business relationship, three disciplines are required of both the customer and the supplier, these being:

1. Relationship Management;

2. Delivery Management (by this I mean Project Management in the case of a project or Service Management in the case of an ongoing service); and

3. Contract Management.

Dealing with these in reverse order for reasons which will become apparent, let’s start with Contract Management.

Contract Management is a mutual activity, as both the customer and the supplier will have rights and obligations under the contract. It is a “zero tolerance” activity, because every change to the contract, no matter how small, needs to be contractually handled. And, not surprisingly, the prime focus of Contract Management is managing compliance or non-compliance with the contract. To use a simple example, which I’ll use for the other disciplines too, let’s suppose that a contract prescribed that a particular deliverable be provided on blue paper. Let’s further suppose that the parties subsequently agree that this deliverable be provided on pink paper. The role of Contract Management would be to record this change, regardless of whether this would have an impact upon the delivery timescales or the price. Contract Management maintains the contract baseline and manages to this baseline.

Turning now to Delivery Management: both parties again need to undertake these functions, albeit that the supplier would necessarily be focused on delivering the project or service, whereas the customer would be focused on assuring the delivery of the project or the service by the supplier. From a project or service perspective, Delivery Management is a “zero tolerance” activity in that every change to the project or service would need to be considered from the point of view of whether the change impacted the deliverability of the project or service. However, the activity is not “zero tolerance” to the same extent as Contract Management: it may well be that the change from blue to pink paper has no or negligible impact upon the project or service deliverability and so the change can be ignored from a Delivery Management perspective. Delivery Management manages the project or service baseline and manages delivery against this baseline.

Because the focus of Relationship Management is on the business relationship between the two trading parties, the maximisation of the mutual business benefits for the parties is its prime concern. It follows therefore that Relationship Management should drive the relationship between the parties, rather than Contract Management or Delivery Management, although both of these latter two functions have supporting roles to play in assisting and informing the Relationship Management function. So in short, Relationship Management puts the ‘collaboration’ into Collaborative Business Relationships, ably supported by Contract Management and Delivery Management.

The fact that three functions are required does not mean that there need be three different people to undertake the different functions. What is important is that there is a recognition of the different functions that need to be undertaken in order to achieve a Collaborative Business Relationship and the interaction between these functions. This will ensure that Contract Management and Delivery Management do not constrain the relationship – they are the means rather than the end: the relationship is the end.

Ian Deeks

Ten Squared Limited

24 February 2011

 
 


 

'Management Of Change' In EPC Contracting --- A Win-Win Proposition

 
Traditionally, among all other facets of Contract Management, “Change Management” is among the most striking responsibilities for a Contract Administration & Management division. Today’s business and economic environment has made the discipline of ‘Change Management’ increasingly significant to Contract performance. The volatility of markets, the emergence of new technologies and the regular introduction of new regulations are among the causes of more frequent change, which pose a real challenge to costs, profitability and performance requirements. N. Balachandar, Department Head-Contract Administration & Management, Technip India Limited
 
 

INTRODUCTION

Traditionally, among all other facets of Contract Management, “Change Management” is among the most striking responsibilities for a Contract Administration & Management division.

Today’s business and economic environment has made the discipline of ‘Change Management’ increasingly significant to Contract performance. The volatility of markets, the emergence of new technologies and the regular introduction of new regulations are among the causes of more frequent change, which pose a real challenge to costs, profitability and performance requirements. This is reflected by the findings from ‘International Association for Contract and Commercial Management’ (IACCM) that ‘Change Management’ is amongst the top items for negotiators when they are agreeing the initial contract terms.

From a Contract point of view, a “Change” means the difference between the Contractual requirement as set forth in the original agreement between the Parties and the requirements imposed subsequent to this agreement, during the implementation of the Project / Contract. Changes that arise during the Engineering phase, Procurement phase or Construction phase could originate with the Owner (Client), Contractor or even a third party to the Contract.

CHANGES per se

A “Change” represents any modification – addition, deletion, substitution or any alteration – of the scope of work, the Contract Schedule, or any other part of the Contract. More importantly such a “Change” does not alter the general of work viz. the ‘basic work’ for which the tender has been floated must not be altered.

A Contract Manager must ensure that the Contract defines “what constitutes a Change” (and, for the Client - “What is not a Change”) and also specify a remedy in the Contract – remedy available to the Contractor in terms of Compensation, Schedule extension & possible impact on other provisions of Contract.

TENDER STIPULATION

The ITB (Invitation To Bid) or the Tender document prepared by the Client typically defines many conditions, with regard to Changes in Work. As a Client, it is quite natural that they expect these changes could be accommodated as a part of ‘Design Engineering Evolution’ or ‘Construction Site requirement’ or ‘normal industry practice’ for which they need not pay extra to the Contractor. They are afraid that such changes will result in substantial increases in cost, potentially causing budgetary overruns. BUT for the Contractor, such changes represent ‘scope creep’ and can reduce or eliminate profit margins. Contractors should ‘satisfy’ -themselves- of the input design parameters and Site conditions if they are expected to quote an ‘all inclusive’ Price which factors in these expected evolution & industry practice ‘Changes’; and they must be clear about the boundaries for such ‘Changes’.

As an example, a Tender may read like this: – “Purchaser shall have the right at any time to order Change in Work …………………….” and try to list non-exclusive examples of items that shall NOT constitute Change in Work:

Instructions, interpretations, decisions or acts of Purchaser (Client), which are

  1. To achieve compliance with Contract by Contractor
     
  2. To require Contractor to correct errors, omissions, poor engineering, faulty workmanship or any other failure of Contractor to comply with contract, due to reasons attributable to Contractor; or
     
  3. To avoid failure by Contractor to achieve compliance with Contract; or
     
  4. Required because of some neglect, omission or default of Contractor; or
     
  5. A mere addition to the number of man-hours to be utilized by contractor in the performance of work or its obligations under the Contract, which are normal industry practice for Project definition and engineering work and which may include rework by Contractor; or
     
  6. Any modification or alteration of, amendment or addition to, or deletion from the work necessary to avoid injury or death to persons or damage to property or as a consequence of Contractor’s failure to comply with any of its obligations under the Contract; or
     
  7. Any approvals, instructions or advice given by the Purchaser to achieve Contractor’s compliance with the Contract.

From the above list given in the Tender, there appears to be little or even worse, no scope for ‘Change of Work’. Client would like to bury these changes under the carpet by the use of the phrase ‘compliance with Contract’ or ‘in accordance with Contract’.

WHAT CONSTITUTES A ‘CHANGE’

First, it is essential that the Contractor has a well defined process for managing changes. Far too often, there is an informality to review and approve which may leave Project Managers or ‘Sales’ with the ability to agree ‘Changes’, often with little or no documentation. Not only this will threaten the profitability of the Contract, but it may also generate confusion in the event of a claim or dispute. From the outset, the Contract Manager, in order to avoid ambiguity & misinterpretation of the Contract document must aim counter this situation by insisting on the inclusion of non-exclusive examples of items which may have direct impact on the Work and SHALL constitute a ‘Change in Work’. Examples might be:

  1. Revisions by Purchaser to any part of Contract documentation;
     
  2. Revisions required by Purchaser to parts of Work already completed in accordance with Contract;
     
  3. Delay or Suspension of Work caused by Purchaser;
     
  4. A change in Statutory Requirement after the Effective date of Contract;
     
  5. Variations to scope of Work contained in the Contract;
     
  6. Any default or cause or reason not attributable to the Contractor.
     
  7. In addition, the Contract Manager may specify certain remedial measures aimed at softening the ‘Change of Work’ syndrome.

The Contract Manager may try to add a specific Clause addressing the obligation of the Contractor to implement the ‘Changes’ ordered by Purchaser and linking it with a ‘value’ and ‘agreement’ by Purchaser to pay, something similar to the following:

“Contractor shall not proceed with the implementation of any Change in Work requested by the Purchaser or an aggregate of several Changes in Work that exceeds xx% of the Contract Price or value of such change exceeds xxxx USD/Euro, unless the Parties have agreed upon the impacts (both Price & Schedule, as applicable) of said Change in Work”

In some cases the above may not be acceptable to Client. Even in that case it is better to address this issue rather than to be silent:

“If the Parties could not agree on the impact due to Change in Work, and if the Purchaser requires the Change in Work to be undertaken, Contractor shall comply BUT is obligated to record all cost of the Change in Work via a special cost account tracking system including all activities / details to be resolved at a later date”.

The idea behind such a stand is that to keep the issue afloat and would provide an avenue for further negotiation.

CONTRACT ADMINISTRATION

Having drafted the Contract with utmost care, it is the duty of the Contract Manager to have a sound “Change Order” or “Management of Change” Procedure in-house which provides a means of

  1. Identification
  2. Registration
  3. Documentation and
  4. Processing CHANGES.

Of course, the precise allocation of resources to a project will vary, and it will not always have a large number of dedicated resources, nevertheless, the following roles should be allocated within the team:

Combined Responsibility:

Project Manager is the authorized representative of the Contractor responsible for formally notifying the Contractor’s Project Organization and subsequently the Owner / Client of a ‘Change’.

Project Control Manager is responsible for coordinating the ‘Changes’.

Cost Control Manager is responsible for evaluation of Cost impacts.

Schedule Control Manager is responsible for evaluation of impact on Schedule & key dates.

BUT the Primary responsibility for operation of this procedure lies with the CONTRACT MANAGER. This includes, but not limited to,

  1. Register & Track potential ‘Changes’ identified by the Project Team.
     
  2. Coordinate the preparation of Change notices & Change Proposals
     
  3. Lead negotiation of Change Orders with Client
     
  4. Keep the Change Order Register updated
     
  5. Lead regular Change Order meetings with the Client.
     

SOME BASIC RULES IN PRESENTATION

Before we conclude, let us highlight a few basic rules (borrowed from Mr. Peter Marsh) to be followed in preparing for and presenting Claims:

1. Consider the possible areas for claims from the start of the Contract and plan accordingly; Do not wait until they happen.

2. Keep accurate records from the start of the contract - in particular a good, factual diary

3. Ensure that the records are such that it is possible to trace the number of Man-hours spent on revisions to each drawing and particular reasons why such revisions became necessary.

4. Make a record of the requirements for the giving of notices and ensure all key project personnel concerned are made aware of these.

5. Ensure that all correspondence with and from the employer which could have an impact on claims is reviewed, as are all minutes of meetings.

6. In presenting the claim, make sure that it contains:

a) a short executive summary

b) clear references to the terms of contract on which the claim is based

c) all essential data required in order to understand the claim

d) copies of the program, minutes and other document supportive of the claim.

I would add to this list that a well-functioning Contract Management department captures all changes and claims and maintains a record of them and how they were resolved. It seeks to learn from experience (‘Lessons Learnt’) and to constantly improve the quality of its operations, thereby also gaining the ability to demonstrate its business value to Senior Management of the Organization.

CONCLUSION

The points & issues discussed above are reflective of the practical situation we face during negotiating & executing EPC Contracts world-wide. Some may prefer to claim that it may be easy to put on paper but difficult to practice. Nevertheless, a sincere effort has been made, though brief, to highlight the major issues involved and the role of Contract Managers to have a real ‘Win – Win’ proposition.

N. Balachandar

Department Head-Contract Administration & Management

Technip India Limited

 
 

 
 
 
 
 


 

Strategy Versus Rules: Key To Successful Contracting

 
This 'Commitment Matters' blog was the most read entry during February 2011. It highlights the importance of a more strategic approach to contracting as a source of commercial value, drawing on a recent case study presented by IACCM Certified Member Barbara Chomicka.
 
 
<p>Most contracting processes are highly rules-driven. The terms are dictated by a range of stakeholders from Legal, Finance, Operations, Product Management and various other functions. Contracts or commercial staff mostly have limited authority to make changes; their role is to impose standards or to reconcile and manage differences between stakeholder perspectives and market needs, negotiating within permitted boundaries. On occasion, they may develop creative commercial solutions to intractable problems.</p> <p>Last week I met with Barbara Chomicka, who project managed the highly successful Mediacity development in Manchester, UK. This $500m project was at the leading edge of technology and included a complex mix of suppliers, operating under both public and private sector procurement rules. Unlike most major construction projects, it came in on time and within budget.</p> <p>In addition to her project management skills, Barbara is a qualified architect and a Certified Member of IACCM. I was particularly interested to discover more about the approach she had adopted to contracting and risk management.</p> <p>In common with a growing number of today's complex projects, Mediacity involved many uncertainties. The specifications were in many areas imprecise or highly generalized – for example, that the buildings must comply with the environmental and regulatory standards applicable in 5 years time. The major certainties were the date for completion and the reputational damage that would occur in the event of failure.</p> <p>At the outset, a key decision was made. It was estimated that traditional contract negotiation would take a minimum of 6 – 8 months, and that this would make the completion date unachievable. Therefore work commenced under a Memorandum of Understanding that released an initial $8m to enable start-up . Once this was exhausted, further top-up funds were released. More formal contracts were negotiated in the background while work continued.</p> <p>Another strategic decision related to the criteria for supplier selection. Given the many uncertainties, it was obvious that individual price estimates would have limited meaning and that the key to delivering within budget would be the combination of experience and attitude. In appointing suppliers, the contractor was looking for evidence of collaborative working and a sense of shared ownership for problems.</p> <p>This spirit also influenced the approach to risk management. There was no formal risk register. The integrated project team operated on principles of openness and transparency. When issues arose, they were immediately communicated across the team to enable resolution or mitigation.</p> <p>In combination, these approaches add up to a contracting strategy. They broke many of the rules associated with traditional contracting, yet they led to a successful outcome. Certainly I am not suggesting that they represent a model for every project  or relationship, but they illustrate the need for contracts and commercial professionals to exercise judgment and to develop flexible approaches to their work. It is the ability to understand when the rules do NOT apply that is the essence of good judgment in every profession. In the world of contracts and commercial, we need more people who exhibit this courage and understanding.</p>
 
 

BOOK REVIEW: 'Collaborative Change'

 
A recent survey of CEOs revealed that many are concerned about their ability to manage the increasing “interconnections and interdependencies” created by today’s networked world. Small wonder, then, that there is rapidly growing interest in how to improve external relationships — and thereby mitigate the risks associated with increased complexity — through better forms of partnering, alliances and teamwork.
 
 

A recent survey of CEOs revealed that many are concerned about their ability to manage the increasing “interconnections and interdependencies” created by today’s networked world. Small wonder, then, that there is rapidly growing interest in how to improve external relationships — and thereby mitigate the risks associated with increased complexity — through better forms of partnering, alliances and teamwork.

That is the theme pursued in Collaborative Change, a new book which itself shows collaborative instincts by its use of an expert group of contributors. The book reveals how organisations work with their partners and suppliers to effect process and organisational change. It addresses the underlying concepts and models that can be applied, but also draws heavily on hard-earned experience from senior “experts” to shed light on how such change can be executed through high performing partnerships. This experience is related in many case studies which range from operational duties in Iraq, virtual teams in the British Civil Service, as well as case studies on companies such as Dell and Xerox.

The various contributors bring to life the realities of collaborative working. More often than not, managers need to survive in highly complex and confusing situations, using intuition as well as “method” to achieve their objectives. The book offers unique insights into the various models that can be used to succeed, such as the “spirals of failure and success”, “G+H partnership types” as well as a chapter on emerging standards for collaborative partnering.

By balancing the “academic” view of the world with chapters on the practicalities of contract management, supply chain logistics and managing strategic alliances in the IT industry, the book presents the reader with many “take away” ideas and insights, clearly illustrated by case studies taken from a wide range of organisations, industries and geographies. Perhaps, most importantly for those in the world of risk management, it reinforces the point that organisations constantly encounter risks, many of which cannot be predicted. Therefore risk management is critically dependent on the quality of the systems, procedures and talents that have been developed to cope with the unexpected.

Collaborative Change, Authored by Andrew Humphries, Richard Gibbs, with chapters by different contributors including IACCM CEO Tim Cummins, is available in hard copy from https://www.createspace.com/3483267. IACCM members qualify for a 15% discount by using the code HL2XSGZX.

 
 


 

BOOK REVIEW: 'Proactive Law For Managers'

 
Proactive Law for Managers: A Hidden Source of Competitive Advantage (Gower, 2011) has been written by two IACCM members, George Siedel, Thurnau Professor of Business Law at the University of Michigan, and Helena Haapio, International Contract Counsel, Lexpert Ltd and Founder and Coordinator of IACCM Finland.
 
 

Proactive Law for Managers: A Hidden Source of Competitive Advantage (Gower, 2011) has been written by two IACCM members, George Siedel, Thurnau Professor of Business Law at the University of Michigan, and Helena Haapio, International Contract Counsel, Lexpert Ltd and Founder and Coordinator of IACCM Finland.

The book explains how managers and lawyers can use contracts proactively to reduce costs, minimize legal risks, secure key talent, collaborate to innovate, protect intellectual property, and create value for customers superior to that offered by competitors. The book builds on recent research that focuses on how law can be used to achieve competitive advantage and on advances from the Proactive Law Movement in Europe. This research is complemented by a Manager’s Legal Plan that provides a practical guide for contract and commercial managers and corporate counsel seeking to create sustainable competitive advantage through the law. The publisher has agreed to provide IACCM members a discount when purchasing the book. Request the discount code by clicking here. Order the book at http://www.gowerpublishing.com/isbn/9781409401001. Tim Cummins has written the Foreword for the book. The Preface can be found here: http://www.gowerpublishing.com/pdf/SamplePages/Proactive-Law-for-Managers-Siedel-Haapio-Preface.pdf.)

 
 
 
 

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