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

April 2013 Edition

 
 

Contracts are not enough

 
We must think of contracts in a more holistic way - as a support for the relationship, rather than something independent of it.
 
 

Many years ago, I recall being sent to support an account team in the negotiation of a major opportunity with a large international pharmaceutical company. For that company, it was an important strategic initiative, with Board-level involvement.

During our discussions, we were joined by the senior executive charged with overseeing the project. He looked around the room and then enquired: “Who is going to be my alter-ego from your company? Who will I be speaking with if things are not going to plan?”

We lost that deal and in large part because that executive did not feel confident about the level or authority of the interface. His personal prestige was on the line; he wanted to be sure that this was mirrored in his selected supplier.

I remembered this incident when I was reading an excellent article from the MITSloan Management Review, sent to me by innovation expert Kevin McFarthing. Overall, the article reinforces the points made by IACCM in its push for 'Relational Contracting', or those widely espoused in initiatives by Kate Vitasek and Vested Outsourcing. To quote from the article: “An effective leadership pair - one person from the client organization and another person from the provider organization - goes a long way toward invigorating the innovation process. In high-performing BPO relationships, the leaders are experienced and capable, with high levels of credibility, clout and power within their own organizations”.

So does this lend support to those who argue that contracts are not really relevant, that it is relationships that matter? In my view, clearly not, though it does reinforce the point that we must think of contracts in a more holistic way – as a support for the relationship, rather than something independent of it. Dependence on individuals (and their memories) is a very risky approach to any important project or business relationship; they move, they change jobs, they fall out with each other ….. the contract is the only permanent memorial.

The article also points out the importance of what it terms 'acculturation' across organizations – and this is where it ties closely with the IACCM work on relational contracts. To quote again:

“innovation won't happen unless clients and providers implement a more comprehensive process that combines acculturation across different organizations, an engaging method for generating ideas, adequate funding and a system for managing change”.

This is where IACCM promotes a contracting process that ensures the right dialogue, covering areas such as joint working, shared communication systems, problem-solving and escalation models, focus on risk probability reduction …. areas that typically undermine productive relationships if they are not discussed and mutually agreed and funded.

Contracts alone are not enough to generate and support a successful relationship. But important relationships tend not to flourish without the support and discipline of a well-structured contract. Business today demands intelligent integration of these two elements.

This article was first published as a blog in IACCM's 'Commitment Matters' (see http://commitmentmatters.com/)

 
 

First in series: Success factors in skills development for organizations and individuals

 
Ongoing learning and skills development are essential for the success of individuals, teams and organisations, but it can often be a challenge. How can we encourage others to develop their skills? And how can we create a learning environment to ensure that participants do their best in learning activities, and not just turn up? This is the first in a series of articles surrounding these questions, and more. We'll look at the benefits of long term learning and development, how to engage individuals in the learning process, hints and tips for effective learning and how to measure learning benefits. 
 
 

By Jo Needs, Director Global Professional Development, IACCM

Ongoing learning and skills development are essential for the success of individuals, teams and organisations, but it can often be a challenge. How can we encourage others to develop their skills? And how can we create a learning environment to ensure that participants do their best in learning activities, and not just turn up?

This is the first in a series of articles surrounding these questions, and more. We'll look at the benefits of long term learning and development, how to engage individuals in the learning process, hints and tips for effective learning and how to measure learning benefits. 

 

Challenge yourself.  When was the last time you asked these questions?

  • Where are we versus where do we want, or need to be?  Are we moving in the right direction?
  • Do we analyse our workplace problems in a measurable way before we launch our training programs?
  • Do our training and learning programs really work?  Did we measure the improvements our last learning and development program after implementation?


Training Needs Analysis (TNA) and Evaluation -- Are they necessary?

The world of work today continues to become more and more complex and for all concerned there will be many learning curves ahead.  Gaining or maintaining an edge over competitors has become a priority for organizations, and to achieve success, keep ahead or even survive, organizations appear to have concentrated on four key areas:

  • the need to change,
  • the need to constantly review organizational structures
  • the need to constantly review and develop the skills of staff and
  • the need to focus on the customer. 

The pressures inferred by Peter Senge1 resonate with many.  'As the world becomes more interconnected and business becomes more complex and dynamic, work must become more learningful'.

Before we analyse any learning intervention we must understand the differences between 'training' and 'learning'. Sir Winston Churchill's famous humor nails down this distinction: “I am always willing to learn, though I do not always like being taught.” Let's consider his wisdom if we take responsibility for the learning development of others.


Training and Development (T&D) is a common term usually including all planned learning interventions where learning -- versus training -- is the primary purpose.  In the 1990s the concept of 'learning organization' grew when organizations realized that training is not enough – that to continue training employees using general subject matter – like a communications skills course – was ineffective, inefficient and did not always achieve the expected result.  The best description perhaps comes from Pedler, Burgoyne and Boydell as cited by Pickering:  “A learning company is an organisation that facilitates the learning of all its members and continuously transforms itself.2     

Organizations today, more commonly speak of learning -- with learning and development managers replacing training managers and the same being true of their departments.  But there are real differences between training and learning.

Training focuses on acquisition of new skills and knowledge. Training interventions are usually event driven, trainer led and often provide only short-term results. Classroom based training, workshops, and pure play elearning materials are all part of the training arena.

Learning focuses on achieving permanent changes in behaviour. Learning interventions do not stand alone, but focus on the longer term to give individuals the chance to achieve and maintain changes by applying learning (of skills and knowledge from training interventions) or personal experience. Learning interventions tend to include coaching, mentoring, 360-degree feedback, action learning sets, etc.  One company, Structured Learning Ltd., illustrates the difference in Table 1.

Training

Learning

Skills development

Behaviour change

Externally applied (done to all)

Internally accepted

Short term skill uplift

Long term change

Equips for known challenges

Equips for ambiguous future

Meets current organisational requirements

Defines organisational future

Focuses on the group

Is focused by individuals

Primarily structured

Primarily organic

'Doing'

'Understanding'

Table 1.  Training v Learning3

Organisations will always need some element of training, but the focus should be on the learning that follows.  Learning allows the individual, team and organisation to develop, and builds a platform and readiness for any amount of skills, knowledge and process development that an organisation will ever need. 


Preference for learning   Within IACCM we are committed to ensuring that the long term, behavioural changes are achieved, a return on investment is clear and overall cost benefit analysis can be measured; hence this and future articles will use the term learning versus training.

Many approaches and theories apply to learning, but for any development intervention there are four key considerations:

  • Perform a needs analysis (usually called Training Needs Analysis; TNA, or Gap analysis)
  • Design the intervention/activity
  • Undertake the intervention
  • Evaluate effectiveness of the training (an immediate reaction), and learning (longer term)


Before organizations can fully reap the rewards of any learning intervention, everyone in the organization -- especially senior managers and directors -- must understand the processes and techniques of learning and development.  They must have a key part in identifying the correct needs and in stating the expected results.  A thorough evaluation will reveal the return on investment (ROI) and longer term cost benefit. 


Needs Analysis (NA)

We perform a needs analysis to understand what is needed. The goal is to identify the current level of performance and the performance actually required and to understand why or what is causing the gap. For any learning intervention to be truly effective, it is vital to identify the specific issues an organisation is facing and understand how the intervention will impact these issues.

A needs analysis involves a long-term approach to ensure that any improvement initiative aligns with the organization's vision, mission and values. We can connect each need with a metric, or specific result to ensure that it actually does what it is supposed to do. This is most effective by breaking down the Needs Analysis into four performance needs and linking them to Kirkpatrick's four levels of evaluation, (Phillips 2002)4:

Needs Analysis – are linked to

Evaluation - Kirkpatrick's Four levels5

Individual needs

1 – Reaction – How well did the learner like the learning process

Training needs

2 – What did they learn? (The extent to which the learners gain knowledge and skills?)

Job performance needs

3 – Behaviour - What changes in job performance resulted from the learning process? (Capability to perform the newly learned skills back in the workplace?)

Organization/business needs

4 – Results – what are the tangible results of the learning process, in terms of reduced costs, improved quality, increased production, efficiency, etc?

 

The Japanese use an interesting performance improvement technique.  When faced with a problem, they ask why five times.  By the fifth answer, they believe they have found the root cause of the issue.  They look deeply to find the real needs.

In contrast, here's what can happen when this is not done. A learning and development department is asked to provide some communication skills training.  The department, eager to please, designs and delivers a program. Initially, feedback is very positive, but later, in the workplace, nothing happens.  There is no observable difference in knowledge, skills or behaviour, and the same problems persist. 

This random approach will always fail, because the questions weren't asked at the outset to identify the true needs and the desired outcomes.


So what should happen?

Management needs to clearly understand the current situation. 

  • What specific issues and problems do you see? 
  • What is the impact and cost of these on the organisation?
  • How will the workplace specifically improve after the training program and the learning is applied?
  • How much will training cost? (How will training impact efficiency and cost?)  


Rather than using a random approach, a carefully analysed approach can produce programs that focus on specific problems, and deliver the most appropriate solutions.   By asking the sponsor (the stakeholder who requested the program) to consider and state the outcomes expected, management can provide valuable data for measuring the effectiveness of the program encompassing all four levels, as put forward by Kirkpatrick.5

Future articles will dive more deeply into these areas and other related challenges facing organizations today. 


ENDNOTES

Peter Senge, The Fifth Discipline – The Art and Practice of the Learning Organisation (1990)

2  Pedler, M., Burgogyne, J. and Boydell, T. 1997. The Learning Company: A strategy for sustainable development. 2nd Ed. London; McGraw-Hill.

3  Structured Learning Ltd. – Training Versus Learning (www.structuredtraining.com)

Phillips J and Phillips P – Reasons why training fails - and what you can do about it (2002)

Kirkpatrick D - Evaluating Training Programs – The Four Levels (1975).

 

ABOUT THE AUTHOR

Jo Needs defines and implements learning and development best practice for IACCM learning programs. Her goal is to ensure high customer satisfaction and learning effectiveness by working closely with the relevant Regional Sales Lead and customers of IACCM.

Living in South Wales UK, Jo has worked -- over the last 30 years -- in both public and private sectors in a variety of administrative and management roles.  Since 1996 she has worked within the learning and development profession as a trainer, and as a learning and development consultant and manager. She is also a qualified executive coach and a mentor within local schools.

She has significant experience of the whole training cycle and has spent many years designing and delivering a wide range of learning solutions. Her passion now lies within training needs analysis and evaluation and ensuring the learning experience provides maximum effect for both individuals and organizations.

 
 

Most essential function for all successful Contracts Management programs - The Operational Pillar

 
This second article of a four-part series explores best practices and case studies for optimizing bottom line value out of your contracts.
 
 

By James Misterman, Consultant, Mainspring Consulting Group

This second article of a four-part series explores best practices and case studies for optimizing bottom line value out of contracts or your Return on ContractsTM. The first article appearing in the February issue of Contracting Excellence overviewed the three primary business functions we call pillars of success: Operational, Legal, and Financial.

The Operational pillar of Contracts Management is clearly among the most important elements for beginning a successful program. Subsequent articles will review the important roles that the Legal and Financial pillars contribute towards sustainable, long-term success,

The Operational pillar shows how organizations prepare, negotiate, execute, monitor, and analyze contracts efficiently.  Technology improvements play a critical role; however, contrary to popular misconceptions, the Operational pillar requires more than just technology. 

Figure 1, Contracts Management Framework, outlines five dimensions: Strategy, Organization, Process, Functionality, and Enabling Technology that when deconstructed, shapes an actionable playbook for your Program.  The dimension attributes, such as Vision or Governance, within the framework will be referenced throughout this article along with case studies on how they have been deployed effectively. 

 

Figure 1 – Mainspring Consulting Group's Contracts Management Framework

Let's unpack this framework

Define your Strategy.  How does your organization perceive its Contract Management needs? 

Defining your Strategy is as important to a Contracts Management program as any new initiative an organization pursues.  By taking an honest assessment of where you are today and formulating a blueprint on where you need to be tomorrow, your Strategy becomes a guiding principle to make tough implementation decisions easier and user adoption more manageable. You can communicate these goals to stakeholders (employees within your organization that will be affected by the program) for early and consistent sponsorship and alignment, particularly at the senior executive levels.  This is critical as you will eventually rely on your stakeholders to carry out your strategy. 

By outlining the vision, you can help stakeholders redesign their internal team's vision to meet your objectives.  Sharing the Contract Management principles upfront gives stakeholders an opportunity to raise risks and conflicting initiatives proactively, or augment the plan with success factors before consuming unnecessary time and costs.  A consistent understanding of the Strategy among stakeholders will filter down a consistent message to the user base. 

Example: one organization defined their Strategy and used it to build a Contracts Management shared services organization that enabled them to reduce costs through economies of scale, business empowerment, and staffing mix efficiencies while reducing risk. 

Their Program involved deploying a new process, policy, and system to over 20,000 users in 18 months.  Their Strategy evaluated contract types against implementation risk, user readiness, and business value, which led to tangible quick wins and strong interest from reluctant business units.  It also enabled the following successes:

  • A vision that is both easy to communicate and clearly identifies the value proposition for stakeholders to know “what's in it for me?”
  • A deployment schedule that considers competing initiatives
  • Continued momentum by navigating political battles around sensitive requirements (wants verses needs)
    • If the requirement contributed to strategy's success, they proceeded. 
    • If it was merely a 'nice to have', it was captured and added as a future enhancement. 

Build your Organization.   What are your guidelines for clarifying roles, responsibilities, and benefits of change? In the Organization dimension of the framework, components address the culture of your organization to measure its propensity to change. This will impact your rollout strategy, process changes or the functionality deployed.  Designing your governance structure will depict the flow of communication or decision authority. Early attention to your Contracts Management team enables your Program to transition from deployment to steady state more effectively.  Results can include:

  • Stakeholders will understand their new roles and responsibilities before they 'go-live' which reduces shock and resistance to change.  It also provides more time to design a centralized governance and contract support function. 
  • Having a single Center of Excellence to direct Law, Operations, and Administrative Support will provide consistent messaging across the Program with the ability to respond to internal and external changes with agility. 
  • Change Management activities will be in motion to communicate benefits, risks, and changes across the organization.  Training will become more than technology point-and-click how to.  It will focus on responsibilities and changes in ”day-in-a-life” process.   

In all facets of your organization, consolidating your Contracts Management Organization functions has often yielded the most success. Consider the following contrasting global organizations.  In one Program, Company A, the contracting process is organized by Contract Type. In Company B, the process is organized by Business Function. 

  • To deploy policy changes to confidentiality agreements (CDA's), Company A can respond more quickly, because it has less process deviations to manage or rationalize. 
  • Finding metrics on CDAs or T&C evaluations is almost impossible (feasibly) for Company B, because every Business Function has separate rules or contract information being collected. 

Deploy the right Functionality for your Process at the right time.   What best capabilities do you use to support strategy, organization, and process?  Process and functionality, discussed here together, have a chicken-or-the egg mentality.  Is it better to build a process that meets their technology desires or select a technology that matches a to-be process?  In most situations, building a process is recommended. 

For example, your process needs to address standards for compliance monitoring (i.e., ensuring that your contracts meet internal and external compliance regulations); contract development (i.e., initial drafting and internal review and approval of contracts); and post-award monitoring (i.e., ensuring that terms and conditions are being met and warrant inclusion or exclusion from your Contracts).  A well-defined process can lend itself to most off-the-shelf Contracts Management solutions.  

Configuring a technology is a balancing act between too much functionality that slows down your Program and not enough to where the vision cannot be met.  Your Program should consider some of the following questions:  Do your agreements require strict visibility restrictions, or is there benefit in opening the internal visibility to your Contracts? Is your contract approval established and well-defined which lends itself to automatic creation, or is there too much flexibility where ad-hoc approval is more beneficial? What information highly impacts the language of the document for capturing business insights and success criteria? 

At this juncture, Program fatigue can set in.  Functionality overload delays implementation schedules and increases training complexities, both leading to end-user confusion and aversion.  Avoid the complexities and inertia by merging process and functionality judiciously.  

  • Begin with the basics, e.g., the bookends, how your users obtain the latest legal language and how they store the executed Contract.  Then expand.  The middle piece should consult Internal Policies around approvals, stakeholder's negotiation practices, and your resources contracting acumen.  
  • Instead of launching every bell-and-whistle at go-live, slowly wave in functionality addressing process compliance by backend verification or reporting.  If users are cringing at the change, keep approvals external to the solution at onset.  Instead use reports to ensure that they are uploading their offline approval sign-off sheets.   
  • Validate your requirements, using real-life case scenarios, against potential Contracts Management solutions.  This will support your decision for selecting the right technology and minimizing your work-arounds.

Example: One such organization is currently succeeding in the midst of a multi-phase rollout.  Each deployment has more functionality than the next. 

  • They started with a simple Repository where users can upload executed contracts along with a subset of searchable metadata, including an interim scanning/OCR process to convert all their documents into text searchable format.  This addresses their largest need first and provides an easy transition to the revised process and new technology. 
  • They then developed performance monitoring process controls like automatic alerts on expiration dates while deploying eSignatures, a long time “nice to have” requirement by the business to reduce cycle time for signatures and manual monitoring. 

Add on Enabling Technology.  Which underlying infrastructure and co-existing applications within your Organization can leverage your Contract Management environment? 

Your program will reflect clear sponsorship and direction, a well-defined process, a skilled team with technology to support it, but it may not be fully leveraged.  Today's advanced reporting tools can be used to create executive-friendly dashboards that provide visibility into the volume of contracts being created or explain how the new process and system are being used. 

Your contracts will be able to merge with other initiatives such as Risk Management, Supplier Relationship Management, and Document Management.  And if your Party management, i.e., source of truth for contracting party information, is being managed separately from other groups, you can avoid redundancy.  A Contracts Management program can intrigue stakeholders from every area of the company. 

  • Legal stakeholders would be interested in terms that are highly negotiated.  
  • Finance stakeholders would more accurately predict, and forecast the amount of spend and revenue tied up in contracts. 
  • Building bridges between your contracting data and your master data will help organizations better understand profitability, improve business performance, drive market share, or reduce supplier risk.  

Example:  One pharmaceutical company used their contracting data for a two-year study to understand how shifts in their rebate offering for their commercial contracts correlated with changes in product market share.   By setting up real-life scenarios and tracking investments against results, they now can more accurately determine volatility thresholds and better understand when to spend or when to walk.  They joined data with an internal market analysis team to shift their analysis from reactive to proactive – creating real dashboard (think forward) reporting opposed to rear-view mirror analysis. 

Using a multidimensional framework for your Contracts Management program will enable your Operational function to prepare, negotiate, execute, monitor and analyze contracts more efficiently.  At this point, you likely would have added rigor around Strategy, Organization, Process and Technology and now your program moves from the unknown to an actionable playbook. 

Once your Operational pillar is in place, your organization will have tools you need to manage a larger volume of contracts well and more efficiently.  This includes corresponding business transactions under contract. However, to fully optimize the bottom line value out of contracts, it is super important for organizations to consider the Legal and Financial pillars that will be introduced during the next articles in our series for maximizing your Return on ContractsTM

Our next article will define the Legal pillar and our final iteration will focus on Financial. 

 

References

Article 1 of 4:  Failure to Manage Contracts is Costing Organizations Billions of Dollars Worldwide Each Year; February 2013 IACCM Newsletter

ABOUT THE AUTHOR

James Misterman's 10-year background in Contracts as both as a consultant and within industry has included developing a Contracts Management deployment strategy for a bio-pharmaceutical manufacturer.  There, he advised on solutions, policy and process design, and operational governance controls.  His implementation experience has included Project Management for a global enterprise-wide application for a major pharmaceutical manufacturer, deployed to over 20 countries, 2,000 users, and leveraged to create over 50,000 transactions annually.   

Mainspring Consulting Group is an Implementation, Consulting, and Manage Services partner focusing on Contracting Excellence.  Major responsibilities include delivery on strategic and significant engagements and quality assurance and oversight for Mainspring's Contracts Management Managed Services.   

 
 

Roadmap to the UCC's Rabbit Hole

 
Few legal rabbit holes are as daunting as the Uniform Commercial Code's section 2-207, also called the Battle of the Forms.
 
 

Mike Schechter, Professor of Business Law

Few legal rabbit holes are as daunting as the Uniform Commercial Code's section 2-207, also called the Battle of the Forms.  Even the title reminds us that following the rules will be a fight.  When teaching 2-207, it is the only unit that I explain twice -- going through the same explanation a second time prevents heads from twisting off.

The rules aren't intellectually challenging such as appreciating the interplay between patent rights and compulsory licenses, or as nebulous like the test for pornography ('you know it when you see it').  Section 2-207 is a maze of rules and, the further along one travels, the more turned-about one feels.  Simply keeping track of the analysis becomes the biggest battle for legal practitioners, contract administrators and even educators.

The best resource is a good map.  I quested for such a map and came up disappointed.  The charts I found were either too complicated to be helpful, too large to print, or too restrictive to be useful.  If you happen to be reading this and have created or treasure a wonderful map, apologies: I did not find your map. 

Here is how it works

Section 2-207 begins with determining whether the contract is subject to Article 2 of the UCC, meaning, does the substantive dealing in the contract relate to a good?  A 'good' is something tangible (you can touch it), possess-able (not a lien), and moveable (not affixed to real property although it can be a crop).[i]  One exception is money, which is not a 'good' because it acts as currency (versus a coin collection, for instance, which is a 'good' because it is valued as an object and does not act as a mode of exchange).

If the contract is not about a 'good', then the common law mirror image rule applies, meaning, that acceptance must be the mirror image of the offer or the acceptance operates as a rejection and counteroffer.  If the parties do not catch the discrepancy or otherwise perform, then the common law applies the 'last shot rule,' meaning that the last terms discussed become the terms of the contract.  

Critics say this rule creates a ping-pong scenario where the parties keep exchanging terms hoping to be the last one standing or do less scrupulous acts like sneaking in different terms moments before performance.  Despite these concerns, the common law track at least is straightforward.

If the contract concerns a 'good', either fully or predominantly, then the UCC applies.  Fasten your seatbelt.

The UCC dispenses with the mirror image rule and will find a contract simply if the parties intended to contract.[ii]  After finding a contract, the UCC analysis then splits twice.  The UCC first questions whether both parties are merchants[iii], meaning someone who holds himself out as selling or is in the profession of knowing about this good.[iv]  The UCC next questions whether the term is a new term or a different term.[v]

If one party is not a merchant, then new terms become non-binding proposals — the opposite of common law.  The offeror has to accept this new term or the new term goes away.  A different term between non-merchants is incorporated into the contract.  In short, read your acceptances or you may be surprised about the terms that govern your contracts.

If both parties are merchants, then a different set of rules applies.  Different terms follow the knock out rule, meaning, that the offeror's and the offeree's terms are knocked out and replaced by the UCC's gap-filling terms.  New terms between merchants are incorporated into the contract unless one of three things happen: The offer limits acceptance to the terms of the offer (effectively reviving the mirror image rule); the acceptance requires the terms of the acceptance (effectively invoking the last shot rule); or the new term materially alters the contract by creating a hardship or surprise on the offeror.  If one of these three exceptions apply, then the knock out rule applies.

Oh, and one caveat.  Some courts will apply the knock out rule between merchants if a contract is deemed too one-sided. 

Lost?  Check out the map and see if you can follow this example.  Tom Sawyer buys 10 boats from Huck Finn.  Both are residents of the State of Hannibal.  To fulfill the order, Huck calls Jim in Illinois to procure 20 oars.  Jim agrees at $2/oar.  Huck then emails Jim a confirmation: 20 oars, $2/oar, and includes a forum selection and choice of law clause for Hannibal, meaning that any dispute will be resolved in Hannibal and under Hannibal law.  The oars arrive, Huck delivers the boats with oars to Tom, and Tom discovers that the oars are infested with Borer bugs.  Tom sues Huck in Hannibal. 

Huck is in a difficult position.  He did not make the oars and doesn't want to be liable for them.  He also runs a risk that, if he doesn't join Jim in the Hannibal lawsuit, he could lose against Tom in Hannibal and then lose again to Jim in Illinois.  Plus Huck's paying for two litigations.  Huck's best strategy is to join Jim in the Hannibal lawsuit and let the jury assign responsibility between them.

Jim, on the other hand, wants nothing to do with Hannibal.  For personal reasons, he does not even want to go to Hannibal.  Huck called Jim in Illinois and Jim never agreed to go to Hannibal.  The big question is if Huck can force Jim to come to Hannibal because the email included the dispute clauses.

Following our roadmap, we first recognize that the contract concerns a 'good' (the oar) and is governed by the UCC.  The chart then reminds us to question whether there is a contract.  We have offer, acceptance and consideration (oars for money).  Of import, this contract happened with the phone call.  The subsequent email is not a part of the offer or acceptance, but is considered a written confirmation of the contract.  It still is governed by section 2-207.

The contract is between merchants and Huck's dispute clause is a new term.  Flowing downward, we recognize that the dispute clause will be incorporated into the contract—i.e., Jim comes to Hannibal — unless one of three exceptions apply: The offer or acceptance prevented a change in the terms, or the new term materially alters the contract.  The first two unless-es don't apply.  We're down to the materially alters rule. 

The court that decided facts upon which this scenario is modeled held that the dispute clause did materially alter the contract because hauling someone like Jim into a foreign state's jurisdiction through a confirmatory communication was a surprise.  Specifically, the court believed that the added expenses and risk involved in litigating abroad would require consideration to support.  The term was introduced after the deal was struck and therefore was not supported by consideration.[vi]

So Jim gets to stay in Illinois, Huck gets two battles to fight, and we have a roadmap to track the right question to ask in the battle of the forms.

View Contract Analysis map


___________________

 

ABOUT THE AUTHOR

Mike Schechter is a Professor of Business Law at Herberger School of Business and attorney practicing in Minnesota.  Mike has 20 years law experience in litigation and business, including serving as the general counsel of an international distribution company.  He continues to advise companies with contract, FCPA and employment matters.

Contact: mike@schechtercounsel.com

 

[i] § 2-105.

[ii] § 2-207(1) and (3).

[iii] §2-207(2).

[iv] § 2-104. 

[v] § 2-207(2).

[vi] TRWL Financial Establishment v. Select Int'l., Inc., 527 N.W.2d 573 (Minn. App. 1995).

 
 

Termination for convenience clauses in the private arena: traps every construction practitioner should avoid

 
Never assume contract termination is unthinkable! You can face termination for reasons you likely cannot anticipate when the contract is signed, even before the ink is dry!  The stakes are higher than you may think.  Can you afford the risks and pay high legal costs to protect all parties of the contract from exposure? Author and Legal Counsel, Tracy Vann, details all the possible pitfalls in this article to help you avoid surprising legal headaches.
 
 

Termination – too often ignored – can catch you off guard

Do a thesaurus search of the word “termination.” You'll find: “extinction, annihilation, execution, slaughter, and massacre.”1

No wonder then, when a contractor is told he is being terminated from a project, words of the four letter variety are quickly flying about the room and you are receiving messages from your secretary that your client has called four times, insists it is urgent and is inquiring “can they really do that?”

When embarking on a new construction project, termination is often the last thought that crosses the parties' minds and is therefore often given relatively short shrift in the contract drafting and negotiation stage.

In the current economic climate, however -- given the uncertainties that can plague even the most well planned construction project -- contract termination is a potential outcome parties simply cannot ignore.

Terminating for cause or convenience?  There are two bases for terminating a construction contract: cause and convenience.

Termination for cause allows an owner or contractor to terminate the construction contract based upon the default of the terminated party. While the contract itself governs what conduct constitutes default, typical reasons for “causal” termination are…

  • failure to properly man the job and/or keep up with the project schedule;
  • failure to follow the project plans/specifications;
  • repeated failed inspections; and
  • failure to pay subcontractors.

However, since most owners and contractors rarely intend to terminate a contract on the front end of a project, provisions regarding termination for cause are often overlooked in contract drafting and are seldom clear.

For example, an A201 contract allows an owner to terminate when the contractor “repeatedly refuses or fails to supply enough properly skilled workers or proper materials.” What does repeatedly mean? Probably not once, but three times or five times? Additionally, contract documents almost always require notice and opportunity to cure. How much notice is required and how long does a contractor have to cure? What happens when a dispute arises regarding whether the contractor has successfully cured?

Since termination for cause can be financially devastating for a terminated contractor, contractors rarely walk silently into the abyss and owners or the terminating contractors often find themselves in costly and protracted litigation.

Given the foregoing, the recent trend is for owners and contractors to avoid default disputes by terminating their contracts for “convenience,” rather than for “cause.” 

Breach of contract potential still exists

In theory, terminating for convenience avoids the hassle of documenting the contract breaches, providing notice and cure periods, and arguing over definitional ambiguities. It also purportedly gives the terminating party certainty in regards to termination damages. However, this is not always the case, in particular, where termination for convenience clauses have not been carefully negotiated and drafted.

Traditionally, without cause, an owner or contractor could not terminate another contractor without breaching the parties' contract, thereby being exposed to litigation and potential damages for anticipatory profits. The result was often disastrous for the owner/contractor leading to significant budget overruns when the terminating party had to pay anticipatory profit to the terminated contractor, and then pay to retain another contractor to complete the terminated contractor's work.

Solutions began evolving

During World War I, the U.S. government introduced the concept of termination for convenience as a way to allow it to avoid such costs by giving it the right to terminate a contract that had become “unnecessary” given recent developments in the war. Torncello v. The United States, 231 Ct. Cl. 20, 20, 681 F2d 756, 759 (1982). Upon termination, the contractor was entitled to recover some lost profit, but typically was not entitled to the full measure of damages available under a traditional breach of contract claim.

As the doctrine continued into World War II, the government's basis to include these clauses was that they were “only intended to handle changed conditions, relieving the government of the risk of receiving obsolete or useless goods.” Torncello v. The United States, 231 Ct. Cl. 20, 20, 681 F.2d 756, 763 (1982).

Post-war, the courts continued to allow the government to terminate contracts for convenience, but relied on the “risk allocation nature of the concept to allow termination for convenience only when the expectation of the parties had been subjected to a substantial change that made continuance of the contract clearly inadvisable.” Id.

For example, if the job became impossible, too difficult or too costly to perform if pushed through to conclusion, the government could typically terminate the contract for convenience. Nolan Brothers, Inc. v. The United States, 186 Ct. Cl. 602, 606, 405 F.2d 1250, 1253 (1969).

But, it was clear that the government could not just terminate the parties' contract without any reason whatsoever, despite what the untutored reading of the termination for convenience clause suggested. Rather, some change from the parties' original bargain was required.2

In 1974, the courts first allowed termination for convenience for a different reason than risk allocation and allowed the government to terminate a contract as a matter of strategy in order to save the government money. Torncello v. The United States, 231 Ct. Cl. 20, 20, 681 F.2d 756, 767 (1982).

More good faith glitches

The case was highly criticized, however, on the grounds that the ability to terminate a contract for no reason at all is nothing more than an illusory promise, and illusory promises are void and unenforceable for want of consideration. Id.; see also Restatement (Second) of Contracts § 77(a)(1981).

So, to avoid consideration criticisms, the courts limited the termination for convenience clause by incorporating a good faith element. Kalvar Corp. v. United States, 211 Ct. Cl. 192, 298-99, 543 F.2d 1298, 1301-02 (1976), cert. denied, 434 U.S. 830, 98 S. Ct. 112 (1977).

Still, courts struggled with lack of consideration issues and what constituted good faith.

Within just four years, the good faith limitation was interpreted to require the change of circumstances historically contemplated. Torncello, 231 Ct. Cl. at 20, 681 F.2d at 772. No doubt this frustrated the government, which had enjoyed much latitude regarding their contracts over the previous several decades.

Unsurprisingly, the Competition in Contracting Act (CICA) was enacted, requiring a lenient standard in applying governmental termination for convenience clauses.3

Application of CICA eliminated the “changed circumstances” requirement from federal contracts and relaxed the duty of good faith such that the government now has almost an unfettered discretion to terminate a contract for its convenience, although at least one state has continued to apply the changed circumstances test in the governmental context. See RAM Engineering & Constr., Inc. v. Univ. of Louisville, 127 S.W.3d 579, 587 (2003).

As the use of termination for convenience clauses grew in federal contracts, the clauses started gaining acceptance in private contracts. In 1987, the A201 introduced the concept of termination for convenience, but limited it to suspension. AIA Document A201-1987 § 14.3.

In 1997, termination for convenience was added and thereafter retained in the 2007 revisions. AIA Document A201-1997/2007 § 14.2.

Unlike federal government contracts, in the private context, the law remains that any decision by a party to terminate a contract must be made in good faith, as determined by the reasonable expectations of the parties at the time the contract was executed. Questar Builders, Inv. v. CB Flooring, LLC, 978 A.2d 651, 675-76, 410 Md. 241, 281-82 (2009).

 

 

Don't push the limits – convenience clause may not cover you

The question then becomes, what constitutes bad faith in terminating a contract and how far can you push the limits of one of these clauses before rendering your contract illusory?

In Questar Builders, Inc. v. CB Flooring, LLC, Questar Builders (Questar) was hired as general contractor to construct a luxury mid-rise apartment and townhome complex. 410 Md. 241, 245, 978 A.2d 651, 653 (Ct. App. 2009).

After receiving bids from three flooring subcontractors, Questar selected CB Flooring, LLC (CB) to install carpeting for the project at a total contract price of $1,120,000.00. Id.

After entering into the subcontract, however, the interior design firm working on the project changed the carpets to be installed in certain portions of the project. Id. at 249, 978 A.2d 656.

Questar immediately sought a price quote from one of the previous bidders, Creative Touch Interiors (CTI), “assertively because it was trying to keep CB honest on any requested change order.” Id. Shortly thereafter, CB submitted a change order requesting an upward adjustment to the subcontract price for the carpet change. Id. at 250, 978 A.2d 656.

CB's change order request exceeded the price quote provided by CTI. Id. Questar terminated the contract with CB and issued the contract to CTI. Id. CB filed suit against Questar for damages, including lost anticipatory profits. Id. at 251, 978 A.2d at 657.

The trial judge concluded that Questar improperly terminated the subcontract and awarded expectation damages to CB, considering and rejecting Questar's contention that “it enjoyed a right to terminate the subcontract for any reason based upon its termination for convenience clause in the subcontract.” Id. at 251, 978 A.2d at 657.

Further, the trial judge specifically found that Questar's assertion to be without merit, that its “subjective loss of faith in CB's ability to perform satisfactorily satisfied whatever implied limitations there might be on the exercise of the termination for convenience clause.” Instead the judge held that something more objective was required to satisfy the good faith limitation. Id.

On appeal, the Court reviewed the history of the clause's development in the context of federal procurement and found that the case law supporting such a “broad termination right” was “too broad” in the private context. Id. at 270-71, 978 A.2d 669.

The Court declined “to recognize for private parties the near carte-blanche power to terminate that courts have given the federal government under convenience termination clauses” on the basis that without special government legislation allowing it, such contracts are illusory, and therefore unenforceable. Id.

Rather, the Court, following the historical analysis of termination for convenience clauses, found that “the right to terminate a contract for convenience is a risk allocating tool.” Id. at 277, 978 S.2d 672.

To that end, the Court held that a contractor may terminate a contract, in its discretion, only if it first determines that continuing with the subcontract would subject it potentially to a meaningful financial loss or some other difficulty in completing the project successfully” (i.e., a change in circumstances). Id. Moreover, the Court specifically found that as it relates to the above, a contractor has an obligation to “act reasonably in ensuring that a subcontract does not become inconvenient.” Id.

One of the only courts to rule on termination for convenience clauses in the private context, and the most recent decision, Questar, is from a terminating owners and contractors perspective, because it suggests that despite including a termination for convenience clause in your contract, you are still going to have to show some element of cause to get around the duty of good faith.

Specifically, it suggests that even if you have a change in circumstances or the project requirements or scope, it may not be enough to justify termination. It further suggests that termination for convenience clauses in the private context are going to be carefully scrutinized with disfavor.

Duty of good faith 

Questar is a Maryland state court decision and is therefore not precedent in this state, South Carolina, where courts have yet to rule on the issue.

However, at minimum, it is clear that in South Carolina, a duty of good faith is going to be implied in the construction contract and therefore read into the termination for convenience clause.4

Since we do not know yet how the courts will construe bad faith, savvy practitioners will advise their clients that there is no unfettered discretion to terminate and hopefully can clarify the parties' expectations and rights on this point at an earlier drafting stage.

FOUR ISSUES

There are four primary issues to remember when negotiating a termination for convenience clause.

  • First, is the clause enforceable?
  • Second, how do I invoke the clause?
  • Third, if invoked, what are the parties' obligations under the clause, and
  • Four, what compensation is the terminated party entitled to under the clause?

Dealing first with enforceability  Since it is likely the clause can only be exercised in good faith and in accordance with the expectations of the parties, it may be wise to specifically acknowledge that the parties understand the terms of the termination for convenience clause and that the inclusion of such clause was specifically negotiated.

An owner or contractor may also want to expressly include an acknowledgement that utilization of the termination for convenience clause does not violate the owner or contractor's duty of good faith to the contractor and that it is the express intent of the parties that the owner or contractor be allowed to terminate the contract for any reason whatsoever, should the owner or contractor deem it advantageous to do so.

While this may appear to render the contract illusory -- because you have already noted that these provisions are specifically negotiated, and because you are about to address compensation for termination by convenience and perhaps even a termination fee -- it is unlikely a court will find the contract illusory. After all, you have just outlined your own separate consideration for this provision. Additionally, you will want to address the obligations of the parties upon termination and how the terminated party will be compensated. The more provisions in the contract that contemplate a termination for convenience result, the harder it will be for the terminated party to argue that such termination was outside the reasonable expectations of the parties.

This leads to the next major group issue:  obligations and compensation.

Obligations and Compensation – Considering AIA Document 201

To state the obvious, no two contracts are alike; however, all contracts have fairly standard payment issues: actual costs incurred, overhead and profit.

For purposes of this article and for illustrative purposes, we'll consider the standard AIA Document A201. Article 14.4.3 of the A201 provides, “In case of such termination for the Owner's convenience, the Contractor shall be entitled to receive payment for work executed, and costs incurred by reason of such termination, along with reasonable overhead and profit on the work not executed.”

At first glance, the provision seems clear-cut, right? The contractor gets payment for any work it has performed up to the point of termination and a reasonable overhead and profit on work not executed.

  • But how are you going to determine the actual costs incurred and percentage of work performed?
  • What is “reasonable” in terms of overhead and profit?
  • Additionally, what do you do when a contractor frontloads its billing by seeking and collecting payment for work not yet completed?

A terminating party may find itself in the position of actually being owed, rather than owing money at the time of termination.

In order to avoid these types of disputes, practitioners must advise their clients that they must directly and continuously contemplate termination as a possibility and adhere to a consistent and accurate payment application approval process. That process needs to consistently address actual costs incurred, delineate what those costs are for, and regularly assess percentage of work complete.

Additionally, if you are using an A201, you would be well advised to delete the word “reasonable” immediately and insert instead either a fixed sum or some percentage of the outstanding overhead and profit due.

Why use termination for convenience?

At this point (assuming use of the A201) you may be wondering why anyone would even utilize the termination for convenience provision. The terminated party gets its actual costs, the terminating party still has to keep up with all its documentation or is going to be dealing with litigation over good faith, and the terminated party gets reasonable overhead and profit, which, if not modified, will be impossible to quantify, absent litigation. You might be right. Which is exactly why these provisions of the A201 require modification, in particular the language concerning overhead and profit, which is typically the bulk of any termination claim.

Several options are available to address the overhead and profit ambiguities.

One option is to use a cut-off method allowing for recovery of certain identified payments and overhead and profits up to and not exceeding a certain amount. This modified provision provides the owner with a level of certainty by fixing a cap on the amount of overhead and profit a contractor may recover.

Another drafting option entitles the contractor to a percentage recovery of its contractor's fee or overhead and profit based on the level of job completion. Of course, this option still leaves you litigating percentage of job completion, so you will want to set percentages in ranges.

For example … if the level of work completion is less than twenty-five (25) percent complete at the time of Termination, Contractor shall be entitled to five (5%) percent of its unearned Contractor's Fee; if the level of work completion is between twenty-six (26) percent and fifty (50) percent at time of Termination, Contractor shall be entitled to ten (10) percent of its unearned Contractor's Fee…and so forth and so on. Based on each project, an owner or contractor can determine the best breakdowns and most suitable level of detail.  

A third option is to completely waive overhead and anticipatory profit and state that the contractor's sole compensation when terminated for convenience will be its actual costs incurred to date of termination for work performed. While this option may seem harsh, it is being regularly used, and construction practitioners are well advised to instruct their clients to be on the lookout for it.

Finally, a fourth option -- and there are others -- is essentially a hybrid. It provides the contractor with alternative bases of calculating recovery based on level of completion. For example:

Contractor shall be entitled to receive either payment for work executed, and costs incurred by reason of such termination, which costs shall include costs for materials, or contractor shall be entitled to be paid a pro-rata percentage of the total contract sum which is equal to its percentage of completion on the effective date of termination, whichever of the two methods is lower. The Contractor hereby waives and forfeits all other claims for payment and damages, including anticipated profits. 

In contrast to the A201, this revised provision links the contractor's recovery to work actually performed, rather than permitting the contractor to recover overhead and profit on uncompleted work.

Costs

In addition to addressing overhead and profit, carefully drafted termination for convenience clauses also must consider costs. That is, if we are going to provide that the terminated party may recover its “costs,” what costs are we going to allow and are there any that need to be excluded?

Costs are not defined in the A201. However, costs to consider are cancellation costs, de-mobilization costs, interest on supplier accounts, materials incorporated into the project that were not purchased by the contractor but already in supply, and the list goes on and on.

Deadlines

Lastly, any well-drafted termination for convenience clause needs to include a deadline for the terminated party to submit its claim for damages under the termination clause. In some cases, this is critically important because the owner and/or contractor are going to want to retain another contractor to complete the terminated party's work. They will not want to wait long to do so and are going to need some certainty as to how much the recent termination is going to cost them before entering into another contract.

For that reason, it is advisable to include a deadline for the terminated party to submit its claim for costs and any allowable overhead and profit, along with back-up documentation. Additionally, while it goes without saying that all contractors keep excellent records and documentation for their costs and operations, you'll want to include a dispute and possible forfeiture provision, with yet another deadline to address any problems with documentation.

An experienced contractor negotiating with a sophisticated owner and/or contractor will not be surprised to learn that the owner/contractor likes having the unfettered right to terminate the contractor for convenience, but doesn't care to pay unearned profit and overhead and believes the contractor should be satisfied to receive, upon its sudden, unprovoked termination, mere payment for work completed.

But a contractor engaged in a substantial construction project of long duration with commitments to the project will be frustrated if it is terminated early. There may have been substantial investment in new equipment that will pay off only over the entire period of contract performance, and typically it will have foregone other significant projects in reliance on this contract. A contractor only needs to be terminated for convenience once in the first half of a multi-year project to realize quite painfully why getting paid for work completed, without more, is a recipe for financial disaster.

Protect yourself

Contractors should protect themselves from the disaster of a capricious termination by securing detailed and unambiguous financial protection from its results.

Likewise, owners and contractors who want the flexibility to terminate for convenience need to protect themselves, to the extent possible, from the risks the clause will not be enforced, and from costly and protected litigation over ambiguities within the clause, by careful negotiation and drafting on the front end.

Though the subject of termination may seem unthinkable while undertaking a new construction contract, the stakes are simply too high and the possibility of termination too real to ignore. Owners, contractors and their counsel must actively negotiate termination provisions prior to contract execution in order to minimize its risks and financially protect all parties from its exposure.

END NOTES

  1. Roget's II: The New Thesaurus, 3rd ed., Boston: Houghton Mifflin, 1995, Online Ed. (October 27, 2011).
  2. John Reiner & Co. v. United States, 163 Ct. Cl. 381, 325 F.2d 438 (1963); Brown & Son Elec. Co. v. United States, 163 Ct. Cl. 465, 325 F.2d 446 (1963); Nesbitt v. United States, 170 Ct. Cl. 666, 345 F.2d 583 (1965); Warren Bros. Roads Co. v. United States, 173 Ct. Cl. 714, 355 F.2d 612 (1965); Coastal Cargo Co. v. United States, 173 Ct. Cl. 259, 351 F.2d 1004 (1965); Schlesinger v. United States, 182 Ct. Cl. 571, 390 F.2d 702 (1968); G.C. Casebolt Co. v. United States, 190 Ct. Cl. 783, 421 F.2d 710 (1970).
  3. Pub. L. No. 98-369, 98 Stat. 1175 (codified as amended in scattered sections of 10, 31 and 41 U.S.C; see also 41 U.S.C. § 401, 405(a) and 416 (1994); and Krygoski Constr. Co., Inc. v. The United States, 94 F.3d 1537, 1542 (1996).
  4. Adams v. G.J. Creel and Sons, Inc., 320 S.C. 274, 465 S.E.2d 84 (1995); see also U.S. for Use and Benefit of Williams Elec. Co v. Metric Constructors, Inc., 325 S.C. 129, 480 S.E.2d 447 (1997) (applying duty of good faith and fair dealing to construction contracts).

 

ABOUT THE AUTHOR

Tracy Vann is a litigator practicing with Nexsen Pruet's Construction Group in Charlotte, North Carolina, U.S. Licensed in South Carolina as well, she regularly represents the clients throughout South and North Carolina.  She represents owners, contractors and design professionals in a full range of business disputes, including claims arising from:

  • Delay, scheduling or changes in scope;
  • Construction or design defects;
  • Insurance and indemnity agreements;
  • Mechanic's liens;
  • Payment/performance bonds.

Tracy has also represented clients in state and federal courts on matters related to insurance, real property and commercial landlord/tenant litigation.  Additionally, Ms. Vann assists clients with mediation, arbitration and in negotiating pre-litigation compromises.

This article is reprinted by permission from Tracy Vann and the law firm of Nexsen Pruet, LLC, U.S.  It originally appeared in the SC Bar Construction Law Section's News and Notes.

 
 

The role of contracts in owner/contractor engagements Maintaining project control through correct contract planning

 
Who is to blame for project overruns? Many owner/operators who have watched a capital project or plant turnaround spiral out of control will point the finger at one or more contracting companies. But is that fair? Often the owners cannot make the blame stick, because the original contract specifying the work was not clear enough. And that's their fault.  In the case of a safety disaster, the public also will blame the owner/operator, not the contractor. Think back on recent catastrophes. Though the contractor is accountable to the owner/operator, final responsibility for all projects lies with the owner who drew up the contract in the first place.
 
 

By Martin Kris, Consultant and contract management expert, DuPont Sustainable Solutions

Who is to blame for project overruns? Many owner/operators who have watched a capital project or plant turnaround spiral out of control will point the finger at one or more contracting companies. But is that fair? Often the owners cannot make the blame stick, because the original contract specifying the work was not clear enough. And that's their fault.  In the case of a safety disaster, the public also will blame the owner/operator, not the contractor. Think back on recent catastrophes. Though the contractor is accountable to the owner/operator, final responsibility for all projects lies with the owner who drew up the contract in the first place.

 

At DuPont, we believe contracts are crucial to establish effective relationships and communications between the owner and contract management teams. They need to be extremely detailed and well written to ensure contractor engagement is successful.  This is not because we want to have a watertight document to which legal action can be taken at a later stage.  Instead, only when all parties in a contracted engagement know exactly what the expectations are, can they achieve positive outcomes for the project and for themselves.

Our aim is a win-win for everyone, because we want to develop relationships with contractors that turn into reliable, long-term partnerships. Too often, we see battles going on between owners and contractors. They don't benefit anyone. The worst-case scenario is kicking a contractor off the job. Viable, commercially able contractors are at a premium, and we want them to do well and become part of our team for years to come.
 

Pre-contract planning

Finding the right contractor and agreeing to an effective contract with that company starts even before you put the bid package together. 

If there is a choice of location for a capital project, DuPont will look at the local contractor landscape as part of the decision-making process, taking into consideration which site offers a great availability of commercially able contractors. Commercial ability for DuPont includes safety. We therefore research the contractors' historical safety performance, as well as past liabilities and their bottom line. That information allows us to determine which type of contract environment is likely to be suitable.

On most large capital projects, we will work with an external contract management team as our first level or prime contractor. On large capital construction projects, we first contract a construction management firm.  This partnership becomes the foundation for many of the planning processes that follow.  We work closely together to map out the execution phase of the contract environment.

The bid packages we put together for a project will already contain a detailed scope of work and other controlling language that will later appear in the contract. Several meetings will take place with bidding contractors to clearly outline expectations and answer any questions. This helps contractors put together an accurate bid. DuPont also requires all contractors to carry out a Hazard Risk Analysis that is reviewed by our company in the bid package return.

It's all about planning.  Our front-end-loading processes are very detailed to avoid costly changes and potentially catastrophic events during contract execution.

 

Contract development & award

Once the bidders have been selected, DuPont will draft a contract for review and will then hold a series of pre-bid meetings to discuss any questions and carry out gap analyses. All questions and answers are documented and later circulated for clarification.   These clarifications are integrated into the owner-contractor agreement.

The award process is equally critical.  With larger contracts, we often spend several days with essential parties from both sides.  We review work scopes and expectations; means for measuring execution and safe work practices; and again, clarifying in writing any ambiguities or misunderstandings either representative parties might have. 

DuPont contractor contracts will not only include standard terms and conditions, but also site-specific conditions.  This includes a clear delineation of responsibilities, a detailed definition of the scope of work that is measurable and quantifiable, performance requirements, safety expectations, communications and cost controls.  All stakeholders involved with a project, from engineering to safety, sourcing to contract administration, finance to environmental, and possibly maintenance or operations, can contribute to the scope of work and terms and conditions process. 

DuPont also includes a requirement that there is transparency and no apparent difference in contracts between the first level or prime contractor and their sub-contractors. We have learned that often, contractual clarity and control is lost at the subcontract and sub-subcontract levels, and therefore, our contracts with the primes specify that certain language is maintained in the sub-contractual agreements.  . DuPont reserves the right to review sub-contractor agreements / contracts before they are awarded, and post-award, measure for contract executional effectiveness.

 

Contract strategy

Multi-national companies sometimes have little choice about the contractors with whom they work. Owner's operations may be in a region where they work with international contractors who develop the workforce locally and are affected by a shortage of qualified contractor supervision. In regions where contractors can take their pick of work available, companies may have to decide what is non-negotiable in their expectations - for DuPont that would be safety – and then compromise on the type of contract they agree on, e.g. putting in place a time and materials contract instead of a fixed-cost contract.

If the owners' choice of contractors is limited to companies that fall below the expected commercial standard, owners can implement a contract variance process that allows them to accept contractors under very stringent conditions. The contract would include controls that would not be in place for more trusted contractor partners.

Take, for example, a contractor with unacceptable safety scores. At DuPont we might hire that contractor under a contingency, which specifies measurement of safety performance while on the project. DuPont would contractually specify safety and behavior-based training to ensure that, over time, the contractor's safety standards would develop to such a degree that they become a regular partner. That can also benefit the contractor who can highlight his safety performance when tendering for future projects with other owner operators.

 

Measuring contract performance

All DuPont agreements for contracted work will contain quantitative measurement requirements relating to quality, performance and safety. We believe these are inseparable contributors to positive project outcomes. Good safety leads to good quality, because safety is clearly linked to productivity and operability.

We apply leading metrics as indicators for contractors' performance. This is monitored by dedicated field contract administrators who act as the eyes and ears of the owner on site on a daily, weekly or periodic basis.

Once a project has been completed, DuPont checks contractor performance against contractual expectations, and also provides detailed, constructive feedback to the contractor to facilitate improvement.

If expectations are not met, we update records to reflect this, so we know to avoid or monitor this contractor more closely in future.  If the contractor has not performed sufficiently with regard to safety performance, he may not be selected for future contractual consideration.

 

Conclusion

Poor contracts can stop the project and cost you money.  Well written, thorough contract management processes will congeal long lasting partnerships between owners and contractors. 

To their detriment, many owners learn that poorly written contracts, which lack precise work scopes, result in difficulties or complete loss of control of the contractors' work.  They may have thought to protect themselves with the right to stop work on quality issues, but very few companies include tangible clauses related to safety in their agreements (or contracts). If work is halted for safety reasons, companies often find they still have to pay the contractor for the work disruption. To avoid risks associated with inadequate contracts, careful planning in the early stages is vital.

At Dupont, we use our many years of project management experience to work with other companies across all industries from the planning stage to help them draw up adequate contracts for capital projects, turnarounds and work-safety-related ventures right from the start.

DuPont is frequently called in by other companies to take corrective action after capital project overruns, fatalities or catastrophes have already occurred. At that stage, it is possible to take some corrective action and re-negotiate contracts, but much of the damage has already been done. It is far better to take preventative action sooner.

 

 

ABOUT THE AUTHOR

Martin Kris is a Business Process Consultant and subject matter expert for DuPont Sustainable Solution's Contractor Management Practice.  Martin began his career with DuPont's Engineering Department as a capital project health & safety professional on a number of large-spend petrochemical construction projects.  While in construction safety, Martin was part of a capital project that achieved over 10 million man-hours without a lost time injury, and he managed DuPont's first owner-controlled workers compensation and general liability insurance program on a 100% contracted capital project.  Since, he has held several Environmental, Health & Safety Management positions in chemical and aircraft manufacturing operations. Today, Martin works with global clients to effectively develop and manage contracted work programs in large-spend capital projects, turnarounds, and in owner contracted supplemental labor environments. 

DuPont Sustainable Solutions is one of 12 DuPont businesses. Bringing customers the benefits of an integrated global services and technology delivery enterprise, it applies DuPont's real-world experience, history of innovation, problem-solving success, and strong brands to help organizations transform their workplaces and work cultures to create safer, more efficient and more environmentally sustainable workplaces. Additional information is available at www.sustainablesolutions.dupont.com

DuPont (NYSE: DD) has been bringing world-class science and engineering to the global marketplace in the form of innovative products, materials, and services since 1802.  The company believes that by collaborating with customers, governments, NGOs, and thought leaders we can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment.  For additional information about DuPont and its commitment to inclusive innovation, please visit www.dupont.com

 

For further information, please contact:

John Michael Kern
Global Communications Manager
DuPont Sustainable Solutions, EMEA
Tel: +41 22 717 5293
Email: John.M.Kern@dupont.com

 

For further press information, please contact:

Philippa Watts

PR consultant to DuPont Sustainable Solutions

Tel: +44 7771 857 856

Email: philippa.watts1@btinternet.com

 

Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™ and The miracles of science™ are registered trademarks or trademarks of E. I. du Pont de Nemours and Company or its affiliates. K25130 (08-11)

 
 

Finding priceless gems among our IACCM members!

 
This month, we feature Bill Widmer, an IACCM member who has a lifetime of achievement in giving back to his community!  So how about taking a one-minute break to enjoy him the same way I do. 
 
 

IACCM members, Many of your lives are too sparkling to ignore. Your cultural customs and regional lifestyle, sports (competitive or not), charity fund raising, and more, are incredible.  That's what this column is about.  It's taking wing again after a few months' off.

This month, we feature Bill Widmer, an IACCM member who has a lifetime of achievement in giving back to his community!  So how about taking a one-minute break to enjoy him the same way I do?

Also, if you have a compelling accomplishment -- or you know a member who does -- you know where to find me -- unless I find you first! My contact information is below.
 

He squeezes 36 hours into each day!

Bill Widmer's love for his community shows up in so many activities, I can't believe how he manages it all and remains robust with excitement, looking for more ways to reach out to people!

Bill wears many hats like these…and many more!

  • Expert in global outsourcing
  • Commercial leader with a demanding global role
  • Mayor of Atherton, CA
  • Entertainer and musician
  • Evening college professor
  • Fund raiser
  • Former US Congress Office of Technology Assessment Committee Member
  • Knight in the Order of Malta
  • Founder of his own technology business that grew to a substantial turnover with three product lines
 

A quick take of his career path   A low profile Californian, who does not spend all his spare hours surfing...!  Long standing IACCM member, Bill is a successful Commercial Contracts practitioner with experience as a VP/COO in an Outsourcing Group, as a GM in Professional Services, and an early career in CAE/CAD/CAM.

One side of Bill Widmer may have crossed your path too. He has been a successful Deputy VP Commercial Management, a global role with Orange Business Services, and a professional with an enviable record of developing, closing and managing profitable programs in IT and Business Process Outsourcing. It's a demanding career role with global business perspective that inevitably leads to extended hours and a commitment to international travel.

His other side, includes being a lifelong volunteer with his church, with the Knights of Malta, and youth sport programs. Last year Bill chaired the Class of '77 35th Anniversary Fund Raising and helped raise over $8m for the school, presenting his huge check at the October fundraiser.

If you want it fixed, ask Bill! A few years back Bill took exception to some road work in his home town, the City of Atherton, and in no time at all he had been asked to fix the problem - and so he did, in about 15 minutes spotting over $200k in inconsistent budget items and wasteful spending. The then Mayor was smart enough to ask for Bill's continued support and Bill, an addicted volunteer, was quickly persuaded and joined the audit/finance committee where he didn't just point out issues, he proactively fixed them.

If you want it modernized, ask Bill! The more he did the more he felt he could really make a difference, and when he decided to run for Council he was elected at the first try winning 90% of the vote. He was then asked by his colleagues to be Vice Mayor and then Mayor. He has since moved Atherton into the 21st century by successfully establishing sound fiscal policies, accountability and transparency, following through on his campaign promises and goals, outsourcing just about all the administration except for the local police force.

If you want to pay him, forget about it!   Having served his year as Mayor of Atherton, Bill is now continuing as a Town Councilman. I must add that serving on the Council of Atherton and as Chairman of the Town's Environmental Programs committee, are both fully volunteer, unpaid, appointments.

He pays it forward…and backward! And what are the memorable things about his year as Mayor of Atherton? Bill will tell you it's the love of the Community, the need to give back and pitch in, leaving office and knowing he initiated change that will continue to deliver benefits to the town.

He steals the show! But what about that concert in the Park (stealing the stage from the Groove Kings during their break in the concert!), opening fairs, kissing babies, visiting schools on special occasions, proclamations that recognized local citizens, meetings with the media..... you surely deserved the fun times, Bill, and we salute your incredible energy and that you put into practice your ideals of giving back to the community.

I fully expect Bill to brighten up the American conference with another rock performance. Will he?

Bill with a member of the town council Arts committee, having fun during the main event's break.

Sir Bill, Knight of the Order of Malta

Bill presenting the fundraiser cheque

Outside contracting — contribute to this column
Do you have a special activity or achievement in your life outside of contracting? If so, send photos and a 100-word description to Suzanne Birch at sbirch@iaccmresourcing.com for consideration to publish in this column.

 
 

Who are we at IACCM?

 
This fourth in a series of Q&A articles profiles IACCM staff member, Paul Mallory, Vice President of Europe and Africa region.  His primary focus is Professional Development.
 
 

This fourth in a series of Q&A articles profiles IACCM staff member, Paul Mallory, Vice President of Europe and Africa region.  His primary focus is Professional Development.

Paul’s main passion?  It’s watching new IACCM members grow as professionals in global Contract Management.

“Every time we sign a new corporate member, I get a real buzz, because it represents another group of professional colleagues joining our ranks and helping us make this a global profession.  The breakthroughs we have made in getting a number of public sector colleagues to join us and spread the word is a particular source of pride.”   - Paul Mallory

 

Q   What prompted you to join IACCM?

Where else can you help to shape a global profession?... I believe we are utterly unique in this respect. And the great thing is, you don’t even have to be an employee, you can volunteer to help achieve this end, and many do!

  

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

I love the freedom that working in a small, committed team brings. And I also love meeting with groups of members in the member meetings we do in many different countries, finding out what we have in common, which is more than you’d expect! The 4 am global webinars were probably the most challenging.

 

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

That some of my teachers were utterly inspirational and made me want to go out and do great things in the world.  This made me realise that our energy affects those around us.  We owe it to our colleagues to be passionate and inspired by our work! We spend much of our time doing it, so we might as well enjoy it and look for work that gives us fulfillment and a sense of satisfaction and pride.

 

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

I began work in a radar factory, progress-chasing on the factory floor. Then I noticed that a select group of people got to go out to lunch and negotiate with customers.  This was the contracts team. I joined them, mainly for the customer interaction -- which I still love -- and partially for the lunch.

I spent the rest of my time in commercial contracts management. I enjoyed negotiation, problem solving, and relationship building. Lately, my interest has been in learning and professional development; how we can raise our game as a profession; and build better, more sustainable relationships with trading partners -- creating more value and avoiding messy disputes and claims.

I love to speak to groups on this subject, because I feel quite passionate about eliminating some of the old traditional ways of trying to get good deals by beating one another up, and embracing instead a more helpful agenda of creating mutual value. This approach is a lot more fun.

 

 Q   Would you share one incident you remember the most in in being part of IACCM?  It might be something unexpected, humorous or a valuable skill set you developed, or a skill that helped you the most when you first started

The most valuable things I have learned in my career to date are:

1.     I am still learning, and learning never ends.  This is where my excitement comes from!

2.     In commercial contracts’ activities, it is usually better to listen than to speak.

3.     Genuinely desiring a good deal for the other side makes my deal better.   People respond to good intentions, and you have to give trust first, before you receive it.

4.     This is really all about people, so communicating empathy builds relationships.  That’s how results are delivered.

5.     The power of a global network of professional colleagues is immense!  Members who recognise this and use it get fantastic results.

  

Q   Describe briefly your office surroundings.

I work at home, in Evesham, which is a medium sized market town in the west midlands of England, not too far from Stratford-upon-Avon. It is quiet, which is good for concentration, and has a couple of decent tea shops, when refreshment is required. It also has the most fantastic recently restored art-deco cinema theatre (including ‘love-seats’) where I indulge my love of great movies. (‘The Regal’ if you’d like to go).

 

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

I’d like a 48 hour day, and I’d take the second 24 hours off, to read, listen to music and watch movies.

   

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

I’d like all our members to get excited about being part of a global profession.  Volunteering to help us can make it a reality, even if they provide an hour of effort here or there, or get a few colleagues, friends or customers to sign up as members!

 

 

 
 

Recent Job Appointments of IACCM members

 
Congratulations to each member who has made a career change!
 
 

Congratulations to each member who has made a career change!  IACCM's online news magazine, Contracting Excellence, wants to know about it, whether it is a promotion, a title change, or a move to a new company or all of the above!

Please send these details to Suzanne Birch at SBirch@iaccmresourcing.com:

  • your name
  • photo – a close up, head shot of yourself only, sharply focused
  • your new title
  • company (even if this is unchanged)
  • city, country location

Or… send a brief bio that includes all of the above. We'll take it from there! 

 

Most recent members taking positive strides:

USA

  Phil Oliver

Phil has moved from Logica (now CGI), where he was the Head of Commercial for their North American business, to join the commercial management team of AMEC Oil and Gas based in Houston, Texas. In his role he will have responsibility for the overall integrity of oil and gas contracts throughout the opportunity, bid, contract and subsequent project execution phases across the Americas and West Coast of Africa.

 

Frank Chiu

Building on his successful career as a Commercial Director with SITA, Orange Business Services (formerly Equant) and Eclipse Networks/ALLTEL, Frank Chiu has recently been appointed Senior Director, Market Response and Sales Solutions with Cbeyond in Atlanta.

 


 

EMEA

Claire Robinson Claire Robinson

Claire Robinson has moved to a position in De La Rue as a Commercial Manager in Currency at the UK headquarters. She has commercial management responsibility for a large number of international contacts, including several in the UK and Asia.

 


 

Kevin Bean

With long experience in telecoms at GPT, in senior commercial management positions, Kevin was Commercial Director at Fujitsu Services (started in 2000) before moving to T-Systems International based in the UK. He is joining the Contracting Excellence function - a small team of commercial and contracts professionals supporting the Sales and Services organisation in all contractual matters and negotiations in complex IT Outsourcing as well as in system integration deals. The Contracting Excellence function is newly established and is organised within the Corporate Affairs department with a reporting line to the Executive Board of TSI.

Fred Thank

With a strong career in commercial functions within aerospace, defence and IT sectors, Fred Thanki has been appointed Senior Commercial Manager for the Solutions business of De La Rue. Within the Group --  which is world's largest integrated commercial security printer and papermaker exporting to over 150 countries -- the Solutions business offers sophisticated, high speed, cash sorting equipment, security documents.  This includes passports, driving licenses, authentication labels, tax stamps, and software solutions including government identity schemes, product authentication systems and cash management processing solutions.

Chris Ashworth

Chris has moved from Steria where he was a commercial manager in the Steria Homeland Security Sector, to Hewlett Packard where he will work with the ATLAS consortium as a Commercial Manager.  He will be based in Bracknell, Berkshire.

 

 

 

APAC

Lawrence Luang Lawrence Luang

With a strong career in Legal and Commercial and expertise in the Asia Pacific region, previously with Unioil, KEPCO, Logica and NorthgateArinso, Lawrence joined AMEC in June 2012 as Commercial and Contracts Manager for Southeast Asia.  This role encompasses supporting both sales and the complete lifecycle of oil and gas contracts across South East Asia.

 

Stephanie Gray

Stephanie Gray joined HP in June 2012, bringing 15 years of experience in negotiating and drafting major technology contracts.  She will lead the Australia/New Zealand Commercial ES Contracts practice.  Stephanie has held senior positions at the law firm Minter Ellison (where she specialised in technology outsourcing and technology and telecommunications related procurement).  She also has experience in international and offshore outsourcing from earlier employers. Stephanie's degrees are in Law and Arts (English Literature and Australian Studies) from Sydney University and the University of NSW.  She is admitted as a solicitor in NSW.    Stephanie is based in Sydney and will also continue leading the Commonwealth Bank account team. 

Michael Smith

Michael Smith joined HP in December, 2011 as the lead for the Telstra account in Melbourne.  In his new appointment Michael will lead the ES Contracts practice for Asia.  He has worked in Australia, Asia and Europe for companies such as Lucent Technologies and Accenture, where he worked on large projects, and in particular, troubled projects.  He has lived abroad and supported numerous countries in the region, including Indonesia, Malaysia, Hong Kong and Brunei.  At Accenture, Michael was faculty for global CCM training and has delivered CCM training in locations such as India, Russia, Korea and the Czech Republic.   Michael holds a Bachelor of Laws, Bachelor of International Business and Graduate Diploma in Korean Language from Griffith University and Korea University (Brisbane, Australia & Seoul, Korea). He also holds a Masters Certificate in Global Contract Management from George Washington University/ESI International. Michael is admitted as a solicitor in New South Wales, Australia.   He will be transitioning off the Telstra account soon, to assume his new duties.  Michael is currently based in Melbourne.

Bruce Phelan

Bruce Phelan commenced at HP (EDS) in 2000.  He is Sydney-based and in his new appointment he will lead the Regional LAR (Legal Aid Request) & ANZAC Government ES Contracts practice.    Bruce has been a Contract Management professional for over 25 years, gaining extensive experience in the Government (Defence), Product (Enterprise Software) and Information Technology & Business Process Outsourcing fields.  In 1984 Bruce commenced his Contract Management career with the Australian Department of Defence as a procurement executive, concluding with a role within the joint civilian and military team responsible for the development and promulgation of Procurement Policy for the Australian Navy.  He then worked for Rockwell Systems Australia (now Boeing) as a Contracts Administrator supporting the Australian Department of Defence, before working as a Contract Manager for SAP Australia & Asia Pacific during that company's most explosive growth period. 

 
 

 
 
 
 
 

Register now for the 2013 Academic Forum at the Americas Conference • October 8, 2013

 
The 2013 Academic Forum - Integrating Law and Contract Management: Proactive, Preventive and Strategic Approaches - takes place on October 8, 2013, during the IACCM Americas Conference (Oct. 8-10) at the Pointe Hilton Squaw Peak Resort, Phoenix, AZ.
 
 

The 2013 Academic Forum - Integrating Law and Contract Management: Proactive, Preventive and Strategic Approaches - takes place on October 8, 2013, during the IACCM Americas Conference (Oct. 8-10) at the Pointe Hilton Squaw Peak Resort, Phoenix, AZ.

Organized by IACCM in partnership with The ProActive ThinkTank and the Nordic School of Proactive Law, the forum offers you many benefits designed to help you reach your organizational and professional goals.

  • Network with other contract and project management professionals and academics from a variety of legal and management disciplines.
  • Explore, share insights and experiences that help organizations merge proactive/preventive law with good contract, project, quality and risk management practices to achieve organizational goals through strategic contracting and smooth, flexible contract implementations.
  • Share a related research paper or presentation if you wish.  To do so, please respond by July 1, 2013. Visit www.iaccm.com/amer13 for submission details and guidelines (select the ‘academic forum’ tab on the top menu).  Your papers or presentation can represent many disciplines, such as law, business, finance, marketing, management, accounting, information design, management information systems (MIS), public administration, economics, business education, and related fields, as long as the research is relevant to the theme of the forum.

Register to attend the 2013 Academic Forum and IACCM Americas Forum today at www.iaccm.com/amer13.

 
 
 
 

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

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