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

March 2013 Edition

 
 

What is the status of contract & commercial management today?

 
If you don't know your starting point, how can you plan your journey? This article helps you examine the status of your skills and knowledge as a contract manager and learn how this compares with your future needs. It also explains what steps you can take to identify and address skill gaps that may otherwise limit your career progress.
 
 

If you don't know your starting point, how can you plan your journey?

This article helps you examine the status of your skills and knowledge as a contract manager and learn how this compares with your future needs. It also explains what steps you can take to identify and address skill gaps that may otherwise limit your career progress.

Uniformity of Skills and Knowledge: Does it REALLY matter?

What skills do you need? What is the current status of your knowledge, compared with your colleagues or with other practitioners? What skills or knowledge improvements are most sought by recruiters and by senior management? If you could access this information, would it assist you?  Would you do anything with it? 

If your answer is no, then don't read on.   But, if you care about your career, your status, your company and of course, your future opportunities, then you may want to invest the next 5 minutes reading this article.

Since its inception, IACCM has monitored skills and knowledge needed by contracts and commercial practitioners to do their jobs effectively. Our research has surfaced more than 40 skills and knowledge fields listed in Figure 1.  Their relative importance depends on the precise role to be performed.  To be truly effective, the typical practitioner must be proficient at somewhere between 20 and 25 of the fields listed.   

Ability to Develop Terms and Conditions

Ability to Direct Deal Shaping and Commercial Strategy

Ability to Motivate / Gain Agreement in Multi-Cultural Teams

Analytical

Awareness of commercial and contract terms and conditions

Commitment to Change and Personal Development

Commitment to Results / Strategic Thinking

Communications

Consulting

Contract Drafting

Data-Based Decision Making

Developing Others

Familiarity With Standards and Norms

Financial Principles and Impact of Issues / Decisions

Identifying / Acting on Opportunities for Change

Influencing Others

International Bids and Contracts

Interpersonal Relationships

Knowledge of Local Business and Commercial Practices

Knowledge of Products and Services

Leadership

Legal Awareness

Manage Bids and Tenders

Negotiation

Organizational Awareness

Performance Monitoring and Reporting

Planning / Project Management

Problem Solving

Relationship Management

Risk Management

Sensitivity to and Knowledge of Cultural Considerations and Impacts

Stakeholder Management

Teamwork

Technology Use and Understanding

Third Party and Channel Contracts

Time Management

Understand Client's Business and Needs

Understand Market Industry and Norms

Understand Process / Roles and Responsibilities

Understanding Geopolitical Conditions

Understanding of Goals and Strategies

Understanding of Local and Global Production / Distribution / Logistics / Capabilities and Needs

Understanding of Organization / Management System / Business Processes

Understanding Standard Contracts, Terms & Conditions, Communications / Legal Policies

Value Focus 

Vendor Analysis and Selection

Fig. 1: The Contract & Commercial Management Skills Portfolio
Note: items in bold are traditionally most important; items highlighted in red are of major current / future importance

This question of which skills really matter is the first issue we encounter when assessing practitioners, because what is needed and at to what depth depends on the job definition as well as the nature of the business. As examples:

  • Will you be required to draft agreements, or simply to review them?
  • Will your role include negotiating financial terms or handling relationships in overseas markets?
  • Does the business use third party channels or sub-contractors?
     

Such questions have led many to conclude that harmonizing skills and defining knowledge in a job description has no purpose.  This conclusion severely undermines the value and status of the role because, if true, then we must conclude that contract and commercial managers are not professionals – they are quite simply individual workers with a similar job title. The concept of an underlying body of knowledge and a consistent method and purpose lies at the heart of every profession.  The idea that skills and knowledge are transferrable is fundamental to professional development and recruitment.

Consider for a moment the finance or legal profession. No doubt, different organizations define the job role of their lawyers or accountants quite differently. However, they hire qualified professionals, because they know that such individuals have an underlying competency based on consistent techniques and knowledge used in today's world.  They then seek qualified professions possessing skills that match job requirements.

The Status of Skills and Knowledge Today

The depth and quality of contract and commercial skills today is highly variable.  We know this, because, over the years, IACCM has assembled a wealth of data that highlights typical skills and knowledge of the contract or commercial manager. Thousands of our individual assessments have enabled IACCM to segment the data by industry; by sell-side versus buy-side, by level of experience, by geography, etc.

We discovered, for example, that the average rating for communications skills is 3.2 (on a scale of 1 for a beginner and 5 for an expert). Analytical skills rate a 3, but key areas such as negotiation and risk management average only 2.8. The target competency level set by senior management is around 3.1, so the average professional falls way short of management goals.

Not surprisingly, the overall quality of skill and knowledge directly relates to the scope and importance of the role being performed. This tends to vary significantly by industry and by geography. A gap exists between the averages for the buyers of goods and services and those in sales contracting.  Another gap appears between the scores of professionals in a pre-award (bid and negotiation) and those in a post-award (contract management) role.

Based on those averages, the typical scores for sales-oriented professionals is almost 20% higher than those focusing on procurement.  And professionals in pre-award score typically around 15% higher than those in post award. But in each case, that gap is closing.

Preparing for the Future

Today we see management expectations growing, regardless of industry. Managers demand greater value from their contracts and commercial staff.  Indeed, some view these skills as potentially a major source of competitive advantage – but only if such skills start to provide proactive market insights and intelligence.   Simply performing transactional tasks is of little value.   The expression, keeping us out of trouble means much more than avoiding lawsuits; it means creating commercial instruments that guarantee a high probability of success.   A good example would be to assist the program team on strategies to not only retain customer business but also grow the business -- almost like a business development professional versus a contracts/supplier chain manager.

We see a shift of emphasis in the required skills portfolio.  Here are a few major shifts:

  • Businesses are placing increased importance on capabilities such as shaping direct deals and commercial strategy (current average score 2.7) or financial principles and analysis (currently 2.9). 
  • We see growing emphasis on international business, leading to placing greater value on cross-cultural awareness, understanding of geo-political issues, financing options and laws/regulations of various countries, each of which currently score less than 2.5. 
  • Management has also increased its focus on 'psychology' – an appreciation of the impact of culture or the way that negotiation or contract terms may influence behavior.
     

This proves the critical importance of professionalism.  Skills and knowledge of the future will not only require knowing how to do things, but also why and when we do them and most importantly the business impacts that commercial or contracting options are likely to have. Therefore, the skills are shifting far more towards areas of research, analysis and diagnostics.  Skills are not limited to just having knowledge, but are continually expanding and using knowledge to generate new ideas or better approaches.

What should I do next?

Much evidence proves that contract and commercial skills are in increasing demand. And further evidence proves that today's practitioners do not always have the skills most needed for the realities of business today, let alone those of the future.   In today's world, you can't just be a contracts/supply chain expert! 

Many contracts and commercial staff believe that they must improve their capabilities in traditional aspects of the role – and they may be correct that this is important. But it will not be enough; to meet the demands of the market (and therefore of top management), we need to expand our knowledge and skills to tackle the emerging needs and priorities. This alone will make us visible and relevant to the executive agenda.

Some years ago, the head of a commercial function told me the story of when her CEO spoke at a meeting for the company's worldwide commercial team. He told them, “I think of you as a I think of a dial tone – I would really miss you if you weren't there”.  I suggest all of us should aspire to be more than missed when we are not there.  We must be professionals viewed as indispensable to good commercial and contract practices and judgment and as key members of executive advisory teams.

To establish this status, you must have a personal commitment to continuous improvement. One immediate and practical step would of course be to obtain your personal assessment and benchmark of skills from IACCM.   Once you know your start point, you can effectively plan your journey!   We at IACCM look forward to assisting you in you journey as a contracts and commercial manager!  

 
 

The Competencies a Contract Manager Needs: A Process Perspective

 
Enduring high performance in any field of endeavor requires a systematic approach to execution. In Contract Management, the Contract Lifecycle model provides the high level framework to approach contracting as a business process. But even the most carefully designed contracting process supported by sophisticated Information Technology infrastructure will not succeed without capable Contract Management professionals. Organizations need to invest in developing the functional and interpersonal skills of their staff.
 
 

By María Arraiza-Monteux, Capability Building Program Manager, DuPont Contract Manufacturing Center of Competency; René Franz Henschel, Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark

 

Enduring high performance in any field of endeavor requires a systematic approach to execution. In Contract Management, the Contract Lifecycle model provides the high level framework to approach contracting as a business process. But even the most carefully designed contracting process supported by sophisticated Information Technology infrastructure will not succeed without capable Contract Management professionals. Organizations need to invest in developing the functional and interpersonal skills of their staff.

The IACCM Contract Lifecycle model for both the buy and sell sides consists of five (5) phases, shown in Figure 1.  Consider the competencies and skills that strengthen the Contract Managers' ability to make solid contributions to their businesses. 

Competencies aligned to the phases of the contract lifecycle will be discussed first, followed by aspects that are not phase-specific.

Initiate Bid Development Negotiate Manage

Figure 1.  IACCM Contract Lifecycle Model[1]

 

Initiate Phase

Contract Managers preparing to develop a contractual arrangement must understand how the deal is intended to support the company's overarching business strategy, as well as any applicable functional strategies

  • How will the deal enable the company to differentiate itself from competitors? 
  • How critical is it to maintain flexibility in terms and conditions to accommodate expected growth in demand?
  • If there is Intellectual Property to be shared with a third party, how shall the deal be structured to enable protection of rights?  
     

The Contract Managers will need to become proficient in the legal frameworks and requirements of their company.  Additionally, they will need to be knowledgeable of the functional resources that will support the contracting activity.

Bid Phase

Depending on the type of contracting, a bid process may be utilized to select a supplier of a product or service.  Companies will have their own RFI, RFQ, and RFP forms, as well as specific protocols consistent with the legal requirements for their industry and geography.

In terms of financial evaluations, there are four key knowledge areas for Contract Managers[2]:

  • Tax and inter-company considerations in defining structure and decision processes
  • Fundamentals of finance and accounting
  • Costing and pricing the bid
  • Price vs. Cost of relationship
     

Typically, Contract Managers are assisted by financial analysts to develop the full understanding of the financial implications of a contract.  They must know the concepts and methods applied and how to interpret the outcomes of the financial evaluations.

In the Bid Phase, it is critical that the Contract Managers are well versed in supplier selection methods and criteria. A best practice is to form a team with representatives from the key stake-holding functions, and design weighted criteria against which every candidate will be rated. 

Development Phase

Contract Managers also need to be familiar with the various types of contracts available in their company's repository.  They must understand the implications of the legal terms and conditions, as well as the contracting governance and approval processes in their company.

Knowing how to prepare a clear Statement of Work, and how to draft the specific business terms and performance criteria that will apply to a particular agreement are critical skills for Contract Managers, whether preparing a purchase or sales agreement.

Negotiate Phase

A Value Chain Analysis will be valuable for Contract Managers preparing to negotiate.  The understanding of how their organization creates value for customers and its sources of competitive advantage will result in creating stronger value propositions and more robust evaluations of offers received from third parties.

Negotiation involves persuading suppliers or customers to reach mutually beneficial agreements. Designing negotiating strategies and knowing how to execute the negotiating stages and phases up to closing on an agreement are core competencies for a Contract Manager with contract execution authority.  Familiarity with various styles and tactics will equip a negotiator for an array of circumstances.  The interpersonal skills discussed at the end of this article can be especially helpful during the negotiation phase.

Manage Phase

Once an agreement has been formally reached, Contract Managers become the primary interface with suppliers or customers to ensure that the products and services are delivered in accordance with the specifications, scope of work, and other terms and conditions on the contract.  Administrative tasks are involved, and several indicators must be monitored to evaluate the ongoing health of the relationship.  Ideally, Contract Managers will subscribe to the Performance Management process dictated by the company's Supplier or Customer Relationship Management models.

 

Competencies and Skills Needed Along the Contract Lifecycle

A number of core functional competencies will impact all the phases.  To begin with, Contract Management professionals should understand the industry and business they serve.  Rather than completing tasks mechanically and undermine the opportunity to position contracts as a powerful instrument, business acumen will enable approaching contracting as a value-adding process. They should also understand the Sales, Procurement, and Supply Chain functions within their companies, which will provide a strong technical foundation to their work. 

Not many companies approach Contract Management as a centralized function.  A typical example of decentralized management is having the Procurement function handle a contract up to the Negotiate phase.  Then contracts may be turned over to Operations for the Manage phase.  This approach calls for educating the Buyers and the Contract Administrators on the full spectrum of their respective roles and responsibilities to enable fruitful collaboration.  Otherwise, ineffective hand-offs will preclude the continuity required to attain the original business objectives. 

Contract Managers should also be familiar with the Customer Relationship Management (CRM) and the Supplier Relationship Management (SRM) models. According to APICS, “CRM's philosophy puts the customer first, and SRM's philosophy stresses mutual profitability and meeting marketplace needs over individual profitability and needs” [3]. Implementation of either model typically entails deep cultural transformations in a company, as the customer or supplier bases are segmented in order to manage them differentially.

As companies operate in increased levels of economic and geo-political uncertainty, Risk Management has become a more important competency.  Briefcase Analytics defines four areas of contract risk:  Financial, Operational, Business Conduct and Force Majeure[4]. Systematically identifying, analyzing, treating, and monitoring the risks involved with a robust Risk Management framework and processes[5] will enable businesses to respond to challenges with greater agility and resilience.  According to IACCM research, only about a third of the Contract Managers are experiencing an increased role in risk management [6]. This suggests an opportunity for their professional growth.     

Another important functional competency is Project Management. The Project Management Institute defines this discipline as “the application of knowledge, skills and techniques to execute projects effectively and efficiently, enabling organizations to tie project results to business goals”[7]. Recognizing that effective management of scopes, budgets and cycle times directly impact the quality of the contracting outcomes, some companies are approaching initial contracting activity as a project.  The project management framework lends itself well to a space that is cross-functional in nature, with variety in the work streams and at times high complexity of the deals.    

Lastly, most companies have Information Technology platforms supporting the workflow and buy/sell transactions.  Contract Managers will need to learn to utilize the interfaces and programs required for their job.

Other skills needed throughout all phases of the contract lifecycle are interpersonal and proactive skills[8]. Companies must recognize that it is not enough to have the necessary functional knowledge (financial and legal, process and project management etc.) to perform well. The contracting process is a complex network of interrelationships, both within the company and with customers and suppliers. Relationships must be managed by people who are:

  • Strongly analytical in relation to mapping and improving the necessary interactions between business functions, customers and suppliers;
  • Able to implement and facilitate the necessary communication and reporting lines;
  • Able to establish the necessary leadership, teams and effective delegation of responsibility;
  • Open-minded towards other business functions and cultures, and able to understand their goals, techniques, methods and cultures;
  • Encouraging communication and willingness to share knowledge and information;
  • Facilitating openness to constructive feedback without emotional bias;
  • Encouraging teamwork, networking, responsiveness, ethical, emphatic and social thinking;
  • Outcome-oriented, and able to reach compromise between different interests, without the lack of the ability to take decisions.
     

Knowledge of management, communication, conflicts and culture management and negotiation skills are important, not only in relation to customers and suppliers, but also in relation to facilitating the necessary interactions and processes internally (e.g. liaise between management, procurement, sales, legal and finance).

In short, to have a competent and proactive contracting function requires the resources, knowledge, skills and abilities, right social poise and motivation to create the most value of the contracted relationship [9].  Improving contracting is not only about improving the customer/supplier relationships, but also the international relationships among business functions to create a smooth, lean contracting process.

 

References:

  1. IACCM Buy and Sell Contract Management Curricula
    http://www.iaccm.com/development/online-learning-programs/curriculum/
  2. IACCM Contract Management Body of Knowledge – Buy Side
  3. APICS Certified Supply Chain ProfessionalTM Learning System, Module 3:  Managing Customer and Supplier Relationships, page 4.
  4. “Business Conduct Risk:  How Risky are Your Contracts?” by Briefcase Analytics, IACCM Ask the Expert Call 12-9-2010.
  5. International Standard ISO 31000, Risk Management – Principles and Guidelines, 1st edition, 2000-11-15.
  6. IACCM Benchmark Study, 2011.
  7. “What is Project Management?” from the Project Management Institute website.
  8. A Hard Look at the Soft Side of Performance” by Kate Vitasek and Tracy M. Maylett; CSCMP's Supply Chain Quarterly, Quarter 4/2011.
  9. On the different parts of the competence to do and the sub-elements, see e.g. Le Boterf, Barzucchetti and Vincent (2003). On proactive behavior see e.g. Kaisa Sorsa (ed), Proactive Management and Proactive Business Law (2012).

ABOUT THE AUTHORS

María Arraiza-Monteux is the Capability Building Program Manager at the DuPont Contract Manufacturing Center of Competency, based in Wilmington, Delaware. In her current role, María defines standard work and designs the learning and development program for the global contract manufacturing staff.  Over her DuPont career, María has held manufacturing and technical roles at several manufacturing plants in the United States, Puerto Rico and France, and has been improving supply chains in the specialty and industrial chemical sectors since 2000.  María holds a Bachelor of Science degree in Chemical Engineering, and she is fluent in Spanish, English and French. 

René Franz Henschel is Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark. His area of research is Contract Law, Contract Management and Proactive Management and Proactive Law. He has contributed to chapters in The International Contract Manual (Thomson Westlaw) and the IACCM Contract and Commercial Management – The Operational Guide. He is consultant to companies and public procurement organizations on how to implement best practice Proactive Contract and Commercial Management and software systems to support the relevant processes and activities.

TO CONTACT THE AUTHOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 
 

IACCM Europe Forum 2013

 

Working Across Functional and International Boundaries: What are the challenges, how do you handle them?

 
The Contract Management (CM) professional of today must work across a growing number of boundaries - function, business, industry, geography and jurisdiction. Managing this complexity is key to our success, providing value to your company and yes, even the industry! This article provides an overview of the many roles and tasks to be performed globally.
 
 

By George Neid, Manager Program Contracts, Raytheon

The Contract Management (CM) professional of today must work across a growing number of boundaries – function, business, industry, geography and jurisdiction. Managing this complexity is key to our success, providing value to your company and yes, even the industry! 

While the following analysis overviews the many roles and tasks to be performed globally, it is written from the perspective of a US-based professional within the aerospace/defense sector.  We believe this influence widely represents the scope that today's Contract Manager must embrace, regardless of industry or country represented.

So, in light of this, what are your challenges and how do you handle them?

 

Moving through the phases of the contract cycle

As a CM professional of today, you must wear multiple “hats” to perform your job to the best of your ability.  The complexity of our workplace and the multitasking generation require a unique skill set for the CM professional.  This article offers the IACCM professional ideas and tools to consider at various stages of the proposal/contract cycle

Initiate Phase

In this phase of the program or proposal -- along with reviewing various laws and regulations of both the buyer's and seller's country -- a CM needs to play the traditional role of lawyer, reviewing Terms  & Conditions, Offset/Countertrade and RFP requirements.  Additionally the CM who supports the overall strategy discussions during the pursuit can work closely in the following capacities:

  • Business Development (do we offer the best solution for the buyer?).
  • Deputy Program Manager (who are the best people to execute the program; what are the financial goals of your company; and what is the overall schedule?).
  • Finance (letters of credit, bid bonds, hedging in foreign currency, banking regulations, cash flow, investments).
  • Engineering (specification, statement of requirements, acceptance criteria of equipment).
  • Scheduler/data management (data items, master program schedule, critical chain development, etc.).
  • Supply Chain (do we have the right teammates, foreign suppliers, strategic partners; what are the flow down requirements from the buyer?).
  • Export/Import Operations (what are the rules/regulations—US, Canada, UK, Europe, Asia, South America, other countries?) 
  • Offset/Countertrade (direct/indirect, co-production, technology transfer, exchanging offset credits).
  • International subsidiary others—(are you registering an international company of the buyer?).

Bid/Development/Proposal Phase

During the bid phase/proposal writing stage, the same roles above may apply.  But you'll also need to take the lead in drafting the contract to review buyers and perhaps draft an offsets contract.  Plus, you'll support the capture/proposal manager by assembling the proposal submission to the ultimate customer.

As CM, you may need to use a contracting service to translate the proposal into another language, depending upon customer requirements.  Some countries require a contract to be written in both English and their native language.  In addition, you may need to have this version certified by an in-country translator.

As CM, you may need a Power of Attorney (POA) as required by the customer. POA activities may involve coordinating with numerous organizations--local, state and country national offices.  In my experience with a Middle East country, I had to ensure that the POA was…

  • notarized by my company;
  • notarized by local and state government;
  • notarized by the U.S State Department; and
  • translated and notarized by an in-country translator and notary.  (The translator had to be certified by the foreign country.)

Also, you'll most likely need to deliver the final proposal to the customer, either electronically, by mail, or even in person.  Most international buyers not only require multiple copies of the proposal, but also certified translated copies of technical and pricing volumes along with a “bid opening” conducted at the buyer's location.  I've attended multiple openings and suggest you have more people attending other than yourself. Local in-country representatives should attend as well.

Negotiation Phase

The CM usually is the lead negotiator on the proposal.  The team will be comprised of various disciplines (Program Manager, Finance, Engineering, Configuration/Data Management, Master Scheduler, Quality personnel.)  Depending on the complexity of the proposal, you might need more personnel involved in the negotiation process. Example: on the technical side, you may need software, hardware, electrical, mechanical experts, or even firmware engineers. 

Another technique used successfully is to conduct mock negotiations with internal company personnel or even an outside consulting firm.  This entails setting up various negotiation sessions for the entire proposal covering contract terms, offset requirements, technical offerings, possible alternatives and even different financing scenarios.  This is an important step to successful negotiations!

Be sure to query other business units within your company for past negotiations/contracts with the same buyer in the buyer's country.  Within the multinational arena, we all deal with this unwritten rule:  no excuse for not knowing what other parts of the company are doing in a specific country/region.

Manage/Execution Phase

The typical CM works with the program team to ensure we are compliant with the terms of the contract.  This includes:

  • delivering the product and/or services on time; and
  • providing financial reports, data items, notices of various contract clauses (i.e. funding limitations, data rights, etc.). 

Another part of this phase involves change management—working with the program team to avoid “scope creep”.  Scope creep is very simply, the buyer requesting  -- or even requiring -- the seller to provide additional products or services for free.  Interestingly, the buyer may not request this subtle change directly through the CM's office.  In my experience, “scope creep” snakes through less formal channels—buyer and seller's engineers, various meetings, etc. where the request is “added.” 

The more complicated the product or service being offered, the greater likelihood of scope creep.  Consider having a dedicated change manager and change management plan in place on the contract.

Take note too, that during this phase of the program-- there are always further negotiations.  We sometimes use the saying “negotiations start after the contract is signed!”  Be prepared and plan ahead for these contingencies.

New Phase - Follow On

The follow on effort means keeping the program sold by extending the contract or jointly working with the buyer to incorporate additional scope to the existing contract.  A good example might be the buyer contracts the seller for a specific product.  The product is to be deployed or installed in the buyer's country after which the two parties agree on a follow-on effort for warranty of the product, including repair.  Consider having the seller set up a depot to maintain and repair the product. 

At this point, the CM probably reverts to a business development role and supports the program manager to grow the scope of the contract.

ABOUT THE AUTHOR

GEORGE NEID, Manager Program Contracts at Raytheon, is a 34 year Domestic & International Contracts veteran of Raytheon/Hughes Aircraft//L-3 Communications/Honeywell. George is currently assigned to Network Centric Systems and is working a major US Army Acquisition project along with numerous International efforts.  His business experience includes not only contracts, but also export/import operations and offset/countertrade management.

As a certified member of IACCM, George serves on IACCM's Editorial  Board.  He is an active member of the National Contract Management Association (NCMA), Fort Worth Chapter and Society for International American Affairs (Defense Industry Exports Group).

TO CONTACT THE AUTHOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 

 
 

Moving the role of the legal function from a reactive, on demand advisory service to a proactive, commercial activity

 
Many organizations rely on their legal function for contract support, but have failed to recognize changing market conditions and the pressures this places on traditional legal skills.  This confusion puts the business at risk and in this article, Professor Rene-Franz Henschel calls for a re-think of the role.
 
 

By René Franz Henschel, Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark

Contributors: 
Fayola Yeboah, Contracts Officer for Cobham;
Stephen Davis, Commercial and Contracts Manager, CGI UK;
Flora Cabean, Senior Contracts Analyst, VF Corporation

Many organizations rely on their legal function for contract support, but have failed to recognize changing market conditions and the pressures this places on traditional legal skills.  This confusion puts the business at risk and in this article, Professor Rene-Franz Henschel calls for a re-think of the role.

The traditional view of the legal role as an on-demand support function

The traditional role of the legal function in contract management has often been an advisory, on-demand support function.  Legal experts have been called in to advise on specific legal matters, often when things have gone wrong or to approve or draft specific contract documents.  Unfortunately, this forces them into mostly a reactive and risk mitigating role, based on a court-centered analysis.

Although the importance of legal specialist knowledge has always been recognized and welcomed, -- e.g. in relation to compliance with laws; drafting contract clauses; resolving complex Intellectual Property (IP) questions; and in relation to litigation and Alternative Dispute Resolution (ADR) -- legal specialists are now called upon to more proactively contribute to the development of corporate value.

Such demands even extend outside the enterprise, with growing expectations that the external law firm will also offer increased 'commercialism'. This calls for a critical look at whether the legal function should be more actively involved in the business and contract management processes, including involving them as contract or commercial managers.

The legal function as a proactive, value-adding business function

Some organizations have clearly chosen to invest in dedicated contract and commercial support groups, which may or may not be part of the legal function. Others, however, have not taken this step and are relying on their internal lawyers to provide expanded coverage.

In these circumstances, early involvement at the front end by legal specialists is often necessary, depending on the specific business area involved, the corporate priorities and the legal/business topic. Early involvement relates to traditional, legal risk management -- e.g. compliance with laws and regulations (European Commission [EC] procurement law, competition/monopoly laws, import/export regulations, homeland security and white-laundry rules etc.) -- or the drafting of Non-disclosure Agreement NDA clauses before important negotiations occur.   Increasingly, however, the importance of early involvement relates to shaping complex deals such as service and projects contracts and commercial relationships.

In a service and project contract, the contract is not only a legal instrument, but it also serves a core function as a planning and project management instrument and as a proactive risk management instrument, such as establishing the necessary governance models, communication and reporting lines, etc. 

This means that the legal specialist must also design the contracts and the contracting processes to fit the business models and business processes and secure the necessary flexibility and agility. In other words, the role needs to be more deeply involved as a business architect.  Based on the specialist's detailed understanding of the business, this person supplies the optimal structures, tools and processes to support the business relationship while serving the traditional legal role such as, drafting limitation of liability clauses, etc.

Consequently, the interaction with the business functions intensifies and this drives the need for the contract support function to understand other business functions, their concepts, methods and overall business strategies. It is important to appreciate how legal tools might help or undermine securing and monitoring those strategies (e.g. innovation and Corporate Social Responsibility [CSR]).

Seeing contracts and the contracting process as management tools

Contracts and contracting processes are not only legal instruments, but also management tools that are instrumental in achieving the success of the organizations' strategies and business goals.   IACCM frequently reminds its members that the primary purpose of a contract is economic, not legal. This should be understood by legal and the other functions as well. Therefore, contract specialists must get closely involved in the processes and communications that surround the business projects.

If the contracts are not synchronized with the underlying business model, things go wrong! How the legal function best contributes to value creation – and ensures that its role and actions are not undermining value -  must therefore be analyzed and planned at the top management level. This may also call for a change in the mentality among all those involved.

Lawyers and in-house counsel need to understand that contracting is a management process.  The logic applied must be different from traditional contracts and contract law to implement management techniques.  These include analyzing existing contracts and practices; making strategies for the necessary changes; planning, organizing, staffing, resourcing and leading activities such as monitoring and reporting. This can create a competitive advantage.

Integrating the legal function into contract management can be an opportunity to improve commercial management

Lawyers face a choice. Either they must shift their focus to provide these wider commercial services, or they must enable and support others – like professional contract and commercial managers -- to do so.  By deepening their focus, lawyers can extend their own opportunities for growth.  In a recent article published by IACCM, two general counsels agreed that contract and commercial management actually offers a strong alternative career path for the qualified lawyer.

If all the business functions -- including top management of the legal function itself -- fail to understand the importance of combined contracting, commercial and legal skills for the business outcome, there is a great danger that the legal function will be isolated and fail to contribute value, as every business function should do.

For organizations that continue to look for primary commercial support from their lawyers, the value adding role of the legal function must be analyzed and the legal strategy aligned with the overall business strategy, including whether and how it will empower and enable others. Roles and responsibilities of the business functions have to be carefully defined to maximize the output. Ownership of the processes and the decision-making right must be clarified.

In today's increasingly complex business environment, in some instances, the legal function might involve both the process owner and the decision maker e.g. in relation to legal compliance.  In other instances, the legal function may be in the loop, but not held responsible for the process or be expected to have decision-making rights, e.g. performance management and subsequent production of termination letters or change orders.

The real danger occurs when the legal function is not integrated into the contract management process at all, or if the legal function is in charge of the entire contracting process without possessing the necessary business, process and managerial skills. 

 

ABOUT THE AUTHOR

René Franz Henschel is Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark. His area of research is Contract Law, Contract Management and Proactive Management and Proactive Law. He has contributed to chapters in The International Contract Manual (Thomson Westlaw) and the IACCM Contract and Commercial Management – The Operational Guide. He is consultant to companies and public procurement organizations on how to implement best practice Proactive Contract and Commercial Management and software systems to support the relevant processes and activities.

ABOUT CONTRIBUTORS:

Fayola Yeboah is a Contracts Officer at Cobham. Cobham designs and manufactures an innovative range of technologies and services for aerospace, defence, security and commercial environments. Fayola has worked in contracts for a number of years, for industry leaders such as Rockwell Collins, Honeywell and Quintiles

Stephen Davis is a commercial and contract manager with Logica (now part of CGI, UK based). Having worked in this capacity for over seven years, his career path spans BAE Systems, Fujitsu and Logica.

Flora Cabean is a Senior Contracts Analyst at VF Corporation in Greensboro, North Carolina 

TO CONTACT AN AUTHOR OR CONTRIBUTOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 
 

IACCM Americas Forum 2013

 

Contracts and Commercial Management:Defining organisational roles by their outcomes

 
When it comes to defining the role of the Contracts and Commercial Management (CCM) globally, what do we consider 'normal'?   How much does this role vary? What about transferable skills?
 
 

By Stephen Davis, Senior Contracts & Commercial and Manager, Logica (now part of CGI)

When it comes to defining the role of the Contracts and Commercial Management (CCM) globally, what do we consider “normal”?   How much does this role vary? What about transferable skills?

Tim Cummins, CEO of IACCM, has evaluated the role on the company website in 2008[1] and has regularly updated his research ever since then[2].  Research shows that although different organisations, geographies and industries may have different concepts of what good CCM looks like, skills are common to all and are eminently transferable[3].

So why have we continually asked these questions?  And why are we still asking? Accountants, lawyers and procurement professionals do not seem to suffer from this affliction, so why do CCM professionals?

The aim of this article is to suggest that as contracts and commercial managers, we wrongly focus too strongly on the activities we do -- which could be quite 'specific'  -- rather than emphasize results we achieve.  This distracts from the value we add.

Scoring Goals – what exactly do we do and what value do we produce?  

When CGI, a leading Montreal-based IT provider acquired Logica[4] there was no contracts and commercial function as we would define it today. Instead legal managers, bid managers, opportunity owners, delivery managers and sales people all shared the tasks that CCM would normally call 'their own'.

After the acquisition and the resulting changes, the new UK Contract Management team decided to try a better approach. They asked, “What exactly does the contracts and commercial management function do? And what value does it really add?” 

The answer is best defined by using the analogy of a soccer coach.  Asked if he was a “shooting coach,” he replied, in effect, “No, I'm a goal scoring coach. Players on offense do not say they are attackers. Their job is to score goals. Defenders don't say they're defenders, their job is to stop the other team from scoring.”

Just as the coach defines his role by what he sets out to achieve, rather than what he does on a daily basis, in responding to the question 'What does CCM do?', the response is instead based on 'What business outcomes does CCM deliver?'

Results – Winning Outcomes

By doing this, the CGI Contracts & Commercial team developed a list of the top results CCM must achieve.  These are as follows:

  • Turn talk into work - Sign contracts faster.  By negotiating in a fair and principled manner to obtain the best balance of terms for the deal (which is not necessarily the same as the best terms for the stronger party) negotiations can be concluded quicker, and form a better basis for a strong and effective relationship.
  • Turn work into good business - Sign better contracts. By taking a disciplined and consistent approach, we can deliver better contracts which more accurately reflect the risks and rewards and build on the lessons learned of the past, as well as best practice from elsewhere.
  • Turn good business into cash – Deliver the commitment.  By ensuring that appropriate acceptance and delivery processes are in place, we ensure that a company is able to turn its products or services into cash in the shortest possible time, with the minimum cost to transact.
  • Turn good business into opportunity –
    • Manage contracts better to protect relationships and value for both parties.  By taking the contracts out of the drawer, dusting them off and applying them to real life situations --whether by educating an account team, or playing a more active management role -- both parties can continue the basis for the relationship started with the contract.
    • Enhance and protect profitability by solving problems at cause, not at effect. By taking a proactive role in projects, we can prevent problems before they happen.
  • Turn opportunity into relationships - Establish and enhance effective trading relationships to deliver business outcomes   By ensuring our trading relationships with our suppliers/customers/ partners are effective -- not necessarily the same as friendly unless this achieves all of the above-- we help the business achieve its overriding objectives and deliver sustainable, ongoing value.

By responding to the need for change, CCM became a central part of the way CGI does business in the UK, adding value both pre- and post- contract signature.

So, next time someone asks you 'What exactly is it you do?' think about the above example, and instead of answering with a set of documents you have written, meetings you have attended or processes you follow, describe what you deliver and what goals you score! 

END NOTES

[1] http://commitmentmatters.com/2008/08/11/the-role-of-a-contract-manager/

[2] http://commitmentmatters.com/2009/04/14/the-role-of-a-contract-manager-revisited/

[3] http://commitmentmatters.com/2012/05/03/are-contract-and-commercial-management-transferable-skills/

[4] http://www.cgi.com/en/CGI-completes-Logica-acquisition-new-leadership-team

ABOUT THE AUTHOR

STEPHEN DAVIS

Stephen Davis is a contracts and commercial manager with Logica (now part of CGI, UK based). Having worked in this capacity for over seven years, his career path spans BAE Systems, Fujitsu and Logica (now part of CGI).

"I've been fortunate enough to have some great experiences along the way and work with some great people, including pre-contract and post-contract work in both the UK and France. In whatever role I find myself, I aim to ensure that contract and commercial management is a central part of business decision making and really adds value both to business winning and how we execute delivery, working in partnerships with other functions."

TO CONTACT THE AUTHOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 
 

Who are we at IACCM?

 
This is the third in a series of Q&A articles profiling, every month, one staff member of IACCM. This month, we talk with Jim Bergman, who heads up the association's activities in the APAC & ME regions.
 
 

Every month, Contracting Excellence profiles one IACCM staff member to tell readers who we are and what we do.  This month, we introduce Jim Bergman, Regional Vice President – APAC and Middle East. 

When Jim first joined IACCM he was surprised at how our small staff at the time could help thousands of business worldwide grow measurable success in contract management.

“It proves we can make a significant impact on a lot of people and we do not need an army to make it happen.  As for me, I love what I do and welcome all members to reach out to me if they need anything.”  -- Jim Bergman

 

Q       What prompted you to join IACCM?

I initially joined IACCM on a part-time basis, largely due to the opportunity to contribute to our profession globally, across multiple industries and companies.  During that period, I enjoyed working with all of the IACCM team members and developed strong friendships with each of them - this largely influenced my decision to join IACCM full time.

 

Q       In brief summary, what is your role at IACCM?

My region includes Australia, SE Asia, China, Japan, Korea, India, the Middle East, parts of Africa and Northwest Asia. I meet with members locally, in both their offices and at events, to discuss the challenges they are facing – and hopefully provide some guidance and potential solutions.

 

Q       What do you like most about working with IACCM?  What has been most challenging?

Every day I see a new and exciting challenge, and I enjoy the ability to address those challenges with innovative solutions.  The challenge is in prioritizing where I can provide the greatest level of support and make the biggest impact.

 

Q        What contribution to IACCM are you most proud of and why?

I am probably most proud of adding value to our on-line learning and development program by sharing my insights and experiences with IACCM members across the globe.  We reach thousands of people internationally each year.

 

Q       Would you share one incident you remember the most in being part of IACCM?

I am very much surprised at how broad and far-reaching our visibility is with our members.  When one realizes how small our team is, and yet we have made such a broad and positive impact on the profession, there is a certain element of surprise.  I was attending a local member meeting a few years ago, and someone approached me to let me know how much he appreciated all of the support that he was receiving from us.  He was surprised to learn, at that time, that IACCM amounted to only six staff members.  We have grown in size since then, but it highlighted for me that we can make a significant impact on a lot of people and we do not need an army to make it happen. 

 

Q       How did you go about marketing IACCM internationally?

Much of our marketing is word-of-mouth – our nearly 30,000 members often serve as our most effective marketing force.  In addition, we rely largely on building our internet-based visibility through our website, blog and social media platforms.  And of course, our local member meetings and conferences are crucial to our efforts.

 

Q       Describe your career path and name one thing you loved the most.

Upon graduating from college, in which I received graduate degrees in History, Law and an MBA, I started my career in a corporate supply management group at a global petrochemical company.  I was involved in developing processes and contracting tools, as well as establishing and reviewing transactions and managing commercial relationships.  As the department’s legal resource and contracting process owner, I was able to support over 200 colleagues from across the organization and the globe.  This is what I loved the most, and still do – having daily opportunities to help others.

 

Q       Can you describe briefly your office surroundings when you began the company and where you are now?

My office is based in our home when I am not travelling – and this is the same office surroundings that I had prior to joining IACCM.  With all of my travels, I sometimes believe that my office is at Chicago’s O’Hare airport, or on the next flight in Seat 33C!

 

Q       If there is one thing you could change about your world, what would it be? 

Eliminating inefficiency - time and opportunities are too few and precious to waste.  This is one of the core areas in which I believe we can all generate value for our stakeholders – being more efficient for them, but also enabling them to be more efficient themselves.

 

Q       What do you want most for readers of our website or from Contracting Excellence?

To learn new practical approaches in their roles as contracting and commercial relationship managers.

 

Q       Describe one highlight about your earliest years that you remember the best – something humorous, difficult or best lesson learned?

I faced death twice! 

The first happened when I was seven years old crossing the roadway intersection.  Failing to see me, a gravel truck driver drove his truck over me.  Fortunately, the truck wheels paralleled the position of my body and passed over me, leaving me unharmed.  

The second occurred when I was a teenager assigned to take cash receipts to the bank each day.  One day as I was leaving the store with the bank deposit, an armed and masked gunman approached me demanding the cash that I was carrying.  When I refused, the gunman pulled the trigger but no bullets discharged. 

In both instances, I was able to keep calm.  Terrifying circumstances are momentary, but the way you manage them has the greatest impact. 

 

Q       Regarding your education, what aspect of school do you remember most vividly?

I attended three graduate school programs, obtaining a Masters in Business, Law and History.  The History degree made the most vivid impression.  It taught me to view a situation from multiple perspectives and understand the context of the situation.  Lessons I learned have had the greatest impact on how I have managed contracts and commercial relationships.

 
 
 
 

2013 Editorial Board

Maria Arraiza-Monteux, Program Manager, Dupont, US
Guillaume Bernard, Contract and Claim Manager, Schneider Electric, France
Flora Cabean, Sr Contracts Analyst, VF Corporation, US
Grant Collingsworth, General Counsel, SciQuest, United States
Stephen Davis, Senior Commercial Manager, Logica, UK
Famil Garayev, Category Specialist, BP Canada Energy Group ULC, Canada
Rene Franz Henschel, Associate Professor, Aarhus University, Denmark
Melissa Jansen, Contract Management, Accenture, South Africa
George Neid, Manager, Program Contracts, Raytheon, US
Fayola Yeboah, Contracts Officer, Cobham, UK

_______________________________________________________________________________________

Disclaimer

This newsletter is intended to keep readers abreast of current developments in the field of contract and commercial management. It is not, however, to be used or relied on as a substitute for professional advice. Before acting on any matter in the areas, readers should discuss matters with their own professional advisers.

This site is provided by IACCM on an 'as is' basis. IACCM provides this web site as a service to those people seeking contracting and commercial news and information. IACCM assumes no responsibility for consequences resulting from the use of information on the site or information obtained through links. IACCM will not be liable for any damages of any kind arising out of use, reference to, or reliance on any information contained in the site. IACCM is not responsible for the accuracy or content information contained in the site or in the links provided on its site. Links to and from IACCM do not constitute an endorsement by IACCM of the parties or their products and services.

Copyright

The content in this publication is copyright. Excepted as permitted, no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner.

All content included on this site, such as text, graphics, logos, button icons, images, audio clips and software, is the property of IACCM, or its content suppliers or an identified third party and is protected by international copyright laws. The collection, arrangement and assembly of all content on this site are the exclusive property of IACCM and are also protected by international copyright laws. Any reproduction, modification, distribution, transmission, republication, display or performance, of the content on this site is strictly prohibited.

Use of this site

This site or any portion of this site may not be reproduced, duplicated, copied, sold, resold or otherwise exploited for any commercial purpose that is not expressly permitted by IACCM. Unauthorized attempts to upload information or change information are strictly prohibited and may be punishable under the Computer Fraud and Abuse Act of 1986.

Published by IACCM, 90 Grove Street, Ridgefield, CT 06877, USA www.iaccm.com