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

June 2013 Edition

 


 

 

Priorities are shifting in Contract Management

 
In a recent interview with IACCM, the General Counsel of a division of Bombardier Transportation described the growing importance of Contract Management in delivering good business results. His views are just the latest in growing body of evidence that contract and  commercial management expertise is rising to the top as a critical capability. This article explores why that is happening and the form it is taking.
 
 

by Tim Cummins, CEO of IACCM

In a recent interview with IACCM, the General Counsel of a division of Bombardier Transportation described the growing importance of Contract Management in delivering good business results. His views are just the latest in a growing body of evidence that contract and  commercial management expertise is rising to the top as a critical capability. This article explores why that is happening and the form it is taking. (Listen to the interview with Dr. Marcel Fassbender of Bombardier Transportation here).1

Not long ago, executives focused on hiring or developing deal-makers. With a fast-expanding global economy, business was desperate for people who could structure and win new contracts. Seasoned practitioners who combined commercial acumen with strong negotiating skills were in short supply – and salaries rose to match.

This was largely a sell-side phenomenon. Procurement remained busy focusing on commoditization, compliance and category management – tending to ignore the need for broader commercial or contracting skills.

Today, we see a major switch reflecting very different market conditions. Demand for deal-makers has taken a back seat and has switched the emphasis to those with post-award contract management skills.

A transformed market

With global markets still struggling to pick up pace and many countries still in recession, new business is often hard to find.  Competition within emerging markets continues to grow. Executive management understands that maintaining margins and revenues depends strongly on extracting maximum value from existing trading relationships.  And the search is on for people with the talent to make that happen.

In the past, post-award contract management tended to be dismissed as the poor cousin of the glamorous deal-maker. It was viewed as rather administrative and boring. Salary differentials generally reflected that perspective. But today, Executive Search and Resourcing professionals paint a very different picture. There is high demand for the talented implementer and overseer of contracts.

Podcast offers solution

Dr Marcel Fassbender, General Counsel at Bombardier Transportation, summarizes this new environment very well in a recent interview [live podcast available above]. Describing the critical role of the 'Project Contract Manager', he highlights the very real challenge of finding staff with the right skills for that role. Gone are the days of administration; it's time for proactive management and relationship skills, the ability to ensure detailed oversight of commercial terms, cost containment, required renegotiation and margin protection.

A Dual Phenomenon

No longer can we limit the demand for contract management skills to the sell-side of the business. Similar pressures exist on buy-side contracts, but there are important differences.

Certainly the economic issues are common. Ensuring value-for-money from contracts has become far more important in these days of austerity. But other factors are at play. One is the concern over regulatory compliance and the need to more actively oversee supplier performance and behavior.  Another is pressure to gain wider benefits from suppliers, to ensure continuous improvement and innovation. And a third is a response to the actions of the suppliers. If they are investing in more professional post-award staff, the buyer needs to do the same or it will be at a significant disadvantage.

Indeed, some suppliers task their post-award teams with specific revenue growth targets. This drives increased rigor in the management of change and greater push-back on 'scope creep'. For others, such targets may focus on identifying opportunities for contract expansion or new projects.

Some companies recognized years ago the critical importance of a more holistic approach to contract management. This was especially true in complex services such as outsourcing and telecommunications. Their success in building a robust organization and process is reflected in IACCM research into the levels of value erosion from poor contracting. These industries rank strongly in the top quartile of companies for contract management competency and are far better at capturing value from their contracts.2

With demanding and volatile market conditions set to continue for the foreseeable future, it is clear that industry demand for post-award contract managers will remain strong. Of course, the need for talented deal-makers will not go away, but the real career opportunities right now seem to be less with those that close deals and more with those who ensure they deliver or exceed their expected results.

 

ENDNOTES

1.  IACCM Project Contract Management, IACCM, May 2013 IACCM website, Go to Library Home, Audio & Video, Contract Management, Project Management

2. IACCM 'Return on Investment Study', 2012.  To access the survey results, click on  IACCM Research & Thought-leadership; Return on Investment (ROI) - survey results

PODCAST SPEAKER:  Dr. Marcel Fassbender,
Vice President Contracts & Legal Affairs
Division Locomotives, Light Rail Vehicles & Equipment, Bombardier Transportation, Zürich, Switzerland

AUTHOR: Tim Cummins, CEO, IACCM

To contact the author or speaker, please email your question to info@iaccm.com or connect using the IACCM Member Search (login required).

 
 

Another reminder - 2nd Annual Innovation Awards coming Oct 9, Phoenix! Deadline for entering, Aug 9

 
DID YOU KNOW?   Your success story could put you and your organization in the winners’ circle!  If you are making a measurable difference in raising contracting and commercial capability and performance in your organization, why not compete for IACCM’s Innovation Award?
 
 

DID YOU KNOW?   Your success story could put you and your organization in the winners’ circle!  If you are making a measurable difference in raising contracting and commercial capability and performance in your organization, why not compete for IACCM’s Innovation Award?

IT’S EASY! All you have to do is participate!  Even if you don’t “win” you can’t lose!  You’ll learn, grow, and get better at delivering outstanding results!

PLAN NOW!  Don’t put it off!

  • To enter the awards, please complete the Innovation Award Survey. https://www.surveymonkey.com/s/FZH2FSK  
  • August 9, 2013, is the deadline for entering (submitting the survey).
  • Finalists will be notified no later than August 28th.
  • The winners in each category will receive their well-deserved trophies during the Awards Dinner at the IACCM Americas Conference, on October 9th in Phoenix.

ENTER any of these award categories  Your only requirement is a relevant success story of your own to tell. It must be measured, proven to be significant and found to be sustainable.

  • Award for personal initiative
For an individual practitioner who has shown outstanding leadership or endeavor in delivering value and raising the profile of contract and commercial management.
  • Award for operational improvement
Awarded for initiatives that have delivered significant business value through improved commercial or contracting process or practices.
  • Award for strategic direction
Awarded for initiatives that have raised the strategic profile and contribution of the commercial or contracting process or function.
  • Award for outstanding service provider
For consultants, service or application providers who have led or enabled high value initiatives at client organizations.

LEARN MORE!  Please visit www.iaccm.com/americas for further event information and award details.  IACCM is dedicated to encouraging and promoting innovation in contract and commercial practices and methods.

Contact: Carina Kuhl, VP Member Events & Partnerships    ckuhl@iaccm.com,    tel. +1.203.403.1978, www.iaccm.com International Association for Contract & Commercial Management

 
 

Effective legalese for maximizing your Return on Contracts (ROC) - third in four-part series

 
This article unpacks the strategic advantage 'legalese' can contribute towards the bottom-line value of an agreement if it is written correctly.  Focusing on best practices of refining standard contract templates, the author reveals what might be the most important skill development in 21st century contract management.  Let them walk you through the four-part litmus test of drafting comprehensible, clear, compliant, and complete contract language. Series Roundup from Mainspring Consulting Group: The first article posted in the February issue, reviewed the three primary business pillars of success: Operational, Legal, and Financial. The second, posted in the April issue, featured the Operational pillar and how organizations prepare, negotiate, execute, monitor, and analyze contracts efficiently. This third article will be followed by the fourth and final part of the series that will show how the Financial pillar contributes towards sustainable, long-term financial success.
 
 

by Mauro Caputi, Consultant, Mainspring Consulting Group LLC and Raymond Averna, Esq., Principal Attorney in the law office of Raymond J. Averna, P.C.

This article unpacks the strategic advantage “legalese” can contribute towards the bottom-line value of an agreement if it is written correctly.  Focusing on best practices of refining standard contract templates, authors reveal what might be the most important skill development in 21st century contract management.  Let them walk you through the four-part litmus test of drafting comprehensible, clear, compliant, and complete contract language. 

Series Roundup from Mainspring Consulting Group:

  • The first article posted in the February issue, reviewed the three primary business pillars of success: Operational, Legal, and Financial.
  • The second, posted in the April issue, featured the Operational pillar and how organizations prepare, negotiate, execute, monitor, and analyze contracts efficiently.
  • This article will be followed by the final part of the series that will show how the Financial pillar contributes towards sustainable, long-term financial success.

A contract is an agreement between two or more parties.  It sets forth the private law governing the parties' relationships, specifically, the parties' respective rights and obligations.  It is vital to specify obligations clearly and consistently throughout the contract and ensure that rights are protected and obligations limited.  Drafting the contract effectively is key.

Our focus is about rights and obligations typically found in commercial contracts, and the best practices to consider when reviewing and refining standard contract templates.  In fact, the process of trimming and consolidating templates is among one of the first exercises that we initiate for clients when they begin the Contracts Management process. We organize these according to Mainspring's “The Four Cs of the ROC Legalese Effectiveness Model” as shown in Figure 1.

Figure 1.  The Four Cs of the ROC Legalese Effectiveness Model

 

ROC Legalese Model Defined

Comprehensible: keep it simple

Ensure that the contract readability is high by drafting easy-to-understand text. Comprehensible terms and conditions comprise the mechanics of contracts, not the content itself, because you determine readability by style, sentence structure, diction, organization and formatting.

Readability is critical.  Studies show the relationship between readability and contract interpretation. High readability levels correlate with higher interpretation levels. Improving contract readability reduces the risk of misinterpretation, increases the likelihood of compliance with terms and conditions, which leads to stronger performing contracts.

 

Common pitfalls found in contracts1:

  • Compound Clauses combine multiple clauses into a single clause (e.g. Governing Law; Venue; and Jurisdiction)
  • Overlapping Clauses inconsistently combine clauses (e.g. (a) Entire Agreement; Amendments and Waivers, (b) Entire Agreement; Waivers, and (c) Amendment and Waivers)
  • Duplicate Clauses create redundancies in the agreement (e.g. Best Efforts and Further Assurances in the Transaction, Covenants and Miscellaneous sections)
  • Inconsistent Organization of Clauses occurs when articles are inconsistently named and grouped (e.g. Covenants, Covenants of the Buyer, Covenants of the Seller, Additional Agreements, Additional Agreement and Covenants)
  • Inconsistent Location of Clauses occurs when a clause appears in different sections of a document (e.g. an Amendment clause may appear in either the Miscellaneous or the Termination section)

Rules for enhanced readability include:

  • Use short, simple, familiar words.
  • Avoid jargon.
  • Use culture-and-gender-neutral language.
  • Use correct grammar, punctuation, and spelling.
  • Use simple sentences, active voice, and present tense.
  • Begin instructions in the imperative mode by starting sentences with an action verb.
  • Use simple graphic elements such as bulleted lists and numbered steps to make information visually accessible.”

Measure your readability score   By adhering to the rules and avoiding some of the common pitfalls, you can raise the readability score of contracts.  To measure the score research the free online test websites or use the out-of-the-box feature in Microsoft Word 2010. You can find readability formulas on Flesch formula, Dale-Chall, Gunning Fog, McLaughling SMOG. 

Use common sense – simplify!   Economist Alfred E. Kahn, a devotee of plain English, wrote a message to his legal staff saying, “Every time you're tempted to use 'herein' or 'hereinabout' or 'hereinunder' or, similarly, 'therein,' thereinabove' or 'thereinunder,' and the corresponding variants, try 'here' or 'there' or 'above' or 'below,' and see if it doesn't make just as much sense.”2

Clarity: minimize ambiguity

Eliminate risk of ambiguity of the objectives, parameters and non-financial elements associated with the business arrangement.  Examples of clarity in the contract are in the following two clauses, scope and grant:

Scope – Be specific or risk embarrassing, costly results.    

Before drafting a contract, identify and structure the fundamental terms of the business relationship to create the basic parameters of the contract.  This foundation upon which you establish the parties' respective rights and obligations is the “scope” of the contract.

The scope of goods or services sold must be sufficiently detailed in the contract, because substantial rights and obligations are derived from the sale of goods or services.

For example, consider the contract whereby a manufacturer sells semiconductors to a purchaser. Semiconductor manufacturers typically manufacture thousands of unique parts.  Many are identical except for minor attributes.  Specific legalese is essential.

An ambiguous or deficient description of the parts can confuse the parties as to which parts are actually the subject of the contract.  This uncertainty can create unwanted obligations and accompanying liabilities to the manufacturer.  For example, imagine the confusion that can arise with respect to the manufacturer's obligations as to the following:

  • specifications with which the parts must comply
  • date code of the parts
  • warranties with which the parts must comply
  • applicable lead time for the manufacture of the parts
  • applicable price of the parts
  • packaging requirements
  • shipping terms

Consider further a distribution agreement.  A party (distributor) purchases beverages from a supplier with the right to distribute them within a designated geographical territory.  The distributor expects a detailed and clear description of the products including additional items within the definition of products, such as:

  • product line extensions
  • enhanced products
  • additional brands of products to an existing brand family
  • new brands associated with the trade name of the supplier

On the other hand, a supplier may want to limit the definition of "products" and exclude the aforementioned items. But again, a deficient description of services to be rendered in a services contract can also result in an ambiguity  with similar consequences.

Grant.  Under a contract, a party may “grant” a specific right to the other party, such as a right to:

  • distribute, market or promote a product;
  • have a product manufactured or developed; or
  • license a particular product or intellectual property right.

Because the grant of a right can form the fundamental basis of a contract, you must draft clearly and specifically the right granted, together with all its ancillary effects..

Completeness

Contract templates can include events occurring over the life of the agreement such as, reorganizations, growth through mergers and/or acquisitions, divestitures of business units, or downsizing.

The agreements and the underlying relationships can “evolve” with the contracted parties without the need for amendments or new agreements for every event that occurs.  The four sample clauses below illustrate this point:

1. Price increases.  Price is the key term in both services and traditional product sales or purchases contracts.  With the term, price, the ability to increase the price is inevitable, especially for a long-term contract or if the price of the goods or services is sensitive to the economic, market or other conditions.

A supplier of goods will reserve its right to increase the prices of the goods sold under the contract.  Indeed, the supplier's ability to increase the price of the goods may be critical to maintain its standing in the market.  However, this right, if unbridled, can victimize the purchaser to significant and unrealistic price increases, effectively blocking the purchaser from the market.

Efficient contract drafting can protect the purchaser from unfair price increases, while still protecting the supplier from sudden spikes in costs, resulting from significant changes in market and economic conditions.  For example, a purchaser of goods might agree to the supplier's right to increase prices, providing the contract contains language that any price increase will…

  • be effective only after  a specific time elapses after the purchaser is given written notice of the price increase;
  • be no higher than that price charged to other purchasers of the same goods in the purchaser's geographical territory (and perhaps territories adjacent to that of purchaser's); or  
  • specify whether or not other costs, such as taxes, shipping and insurance are included.

2. Transferability.  In many instances, a services contract may be apply to the talents, experience and ability unique to only the party rendering the services.  This means the recipient of the services would not want any third party to perform the services.. Typically, contracts prohibit the assignment of rights or delegation of duties, or at least, permit the same only with the other party's reasonable consent.  However, effective drafting can actually permit an assignment of rights or delegation of duties to a third party (the assignee), in certain well-defined circumstances, while still protecting the other party's rights under the contract.  Examples of proper drafting that permit assignments or delegations under certain circumstances are as follows:

The proposed assignee…

  • is financially able to perform its obligations,
  • has background and experience in the industry,
  • is an affiliate of the party rendering the services,

…and the proposed assignment would not:

  • materially change the duties of the recipient,
  • increase the burden or risk imposed on the recipient, or
  • impair the recipient's chance of obtaining return performance.  

Clearly and effectively drafting these concepts can ensure more flexibility in the contract and yet, offer the same protection that the outright prohibition of assignments or delegations offer.

3. Liability.  Perhaps the most discussed, negotiated and fought-over provisions of a contract are the liabilities of the performing party.  The potential for unlimited liabilities can “chill” the performance of a party under the contract, expose such party to significant monetary or other damages, and can doom a performing party's business and livelihood.  Effective drafting of pertinent provisions of the contract, such as the warranty, limitation of damages and indemnification, can significantly limit a party's potential liability.

  • Warranty.  Typically, a performing party drafts a warranty for services to be performed or the goods to be sold or manufactured.  From such party's perspective, the warranty should always be specific and limited.  For example, a manufacturer of a semiconductor might limit the warranty on a given part to conform to the manufacturer's specification sheet.  The warranty might further be limited to benefitting only the direct purchaser of the part (and not any other subsequent purchases or users).  And the warranty is based on the specification sheet “ in effect at a particular point in time” (i.e., date of purchase, date of shipment), and is effective only for a limited time (i.e., twelve months after the date of shipment).

Effective drafting would specifically exclude additional warranties in the contract, other than the one contained in the contract.  Further, the contract should contain specific language disclaiming such warranties that might be implied under the laws of the jurisdiction applicable to the contract (e.g., warranties of merchantability and fitness for a particular purpose).

  • Limitation of Damages.  The contract should also provide that if the warranty is breached, remedies are specified and limited.  Such remedies might consist of a repair or replacement of the product, or where repair or replacement is not practical, then a refund of the price paid for that product.

The performing party should consider adding a provision that waives the other party's right to recover consequential damages.  These include damages flowing directly from the act of the breaching party, but also from the consequences or results of the breach.  These damages can include loss of profits or revenues, and can be staggering to the performing party. This waiver, therefore, is a critical and effective protection for the performing party.

  • Indemnification is a contractual agreement whereby one party agrees to  compensate the other party's loss monetarily.  Provisions can be broad, requiring the compensating party to cover not only the aggrieved party's direct loss, but also all claims, liabilities, damages and losses, including court costs, filing fees and attorney's fees. Obviously, this provision can be a powerful contractual remedy for one party (the indemnified party), but correspondingly, an onerous obligation of the other (the indemnifying party).

Effective drafting can significantly limit and reduce the “indemnifying” party's obligations under the contract.  For example, a party's obligation to indemnify can be limited to only a particular breach, such as a breach of warranty.  In that way, the party's breach of any other provision of the contract would not lead to its indemnification obligations.  Consider drafting a “carve out” from a party's obligation to indemnify events, such as acts of the aggrieved party that may have caused its damages.

4. Termination Rights and renewal options.  Most contracts have specific terms, sometimes with options for renewal.  Even if a contract is mutually structured, negotiated and the parties begin a mutually beneficial, long-term relationship, circumstances can change, leading to a re-evaluation of the business relationship. That's why you must consider provisions relating to termination rights.

A party to a contract may identify the following events as constituting their rights to terminate the contract:

  • bankruptcy of the other party;
  • liquidation or dissolution of the other party;
  • felony conviction of the other party;
  • revocation of suspension of the other party's license (if one is required by the other party in order to perform under the contract);
  • fraud on the part of the other party;
  • the other party's breach of a material term under the contract.

The party whose conduct leads to a termination of the contract, would like to be given a right and reasonable time to cure such conduct, at it relates to the breach of contract.  You can draft this provision to include the requirement that a terminating party give the breaching party a detailed description, describing the nature of the breach and the corrective action needed to resolve the breach.

A more powerful right would be to terminate the contract for convenience (i.e., for any reason or no reason at all). This right does away with the need to establish a breach on the part of the other party. On the other hand, this right transforms the contract into an at-will agreement, terminable at any time.

Compliance-Ready

Finally, contract templates that contain compliance-ready provisions must ensure that the deal structure or financial-related terms and conditions -- including financial incentives -- are enforceable and can be administered in a straightforward, efficient and effective manner.  The following three clauses illustrate the point:

1. Performance Requirements.  A party's performance obligations under a contract may be tied into a specific standard of performance. For example, a supplier may require that a purchaser or distributor meet certain objectives based on criteria, such as:

  • purchasing a minimum quantity of products per year;
  • purchasing a minimum dollar value of products per year;
  • increasing certain percentages of the minimum quantity or dollar value of products purchased
  • mutually agreeing to a specified increase in the quantity or dollar value of products purchased and, or if the increase cannot be agreed to, then provide a default percentage or dollar value increase.

If a supplier or manufacturer imposes specific levels of achievements and standards of performance on the purchase or distributor, the contract will contain certain provisions for the preparation and implementation of annual business plans, which would provide for objectives concerning sales, marketing and distribution of the goods.  These objectives typically include:

  • purchaser's/distributor's sales and promotion strategies
  • investment commitments
  • sales and distribution goals

The purchaser or distributor would want the contract to include a provision providing “reasonable commercial efforts” to achieve sales and distribution goals instead of an obligation to actually achieve the stated goals.  This significantly reduces the obligations (and potential liabilities) of the purchaser or distributor, since the failure to actually achieve the contractually agreed-to sales and distribution goals would not constitute a breach of contract, providing the purchaser or distributor at least used “reasonable commercial efforts to achieve such goals.”

In addition, the contract could protect the purchaser or distributor by qualifying the obligation to achieve sales and distribution goals as being subject to “economic and market conditions” or events “beyond the control” of the purchaser or distributor.

2. On-Demand Capacity.  In sales-of-goods contracts, purchasers are increasingly demanding that the supplier guarantee a designated minimum quantity of products be readily available on demand to meet the purchasers' requirements for goods as and when needed.  These obligations are typically found in agreements called vendor-managed inventory, supplier managed inventory , just-in-time and buffer stock agreements.

Although contracts vary, the concept is the same.  The supplier will supply, in advance, a designated minimum quantity of products stored in a designated facility.  The purchaser merely “pulls” the products when needed.  Be aware that this arrangement can be filled with significant pitfalls for the purchaser so it is important that the contract includes the following precautions:

  • purchaser forecasts good faith anticipated demand for products;
  • all products supplied are stored in supplier's, not the purchaser's, facility;
  • before the purchaser “pulls” products from storage, it issues its purchase order indicating the type and quantity of products demanded; the supplier then issues its acknowledgement (containing the supplier's terms and conditions);
  • the supplier is allowed a reasonable lead time to replenish the quantity of goods pulled.;
  • the purchaser's ability to demand an “upside” (a quantity of goods in excess of its original forecast) is limited to a specified percentage;
  • once products have been placed in readily-available inventory, purchaser should be obligated to purchase all such products.

​3. Post-Termination Obligations.  While many contracts contain provisions addressing termination rights, some contracts do not contain provisions relating to obligations of the parties that may or should continue after termination of the contract.  To protect the rights of the parties to the contract, consider drafting provisions that include the following:

  • the purchaser has the right to either exhaust its inventory of products or, obligate the supplier to re-purchase them, at the purchaser's cost;
  • the purchaser has the right to continue purchasing products from the supplier for a time so that the supplier can support purchaser's customer commitments;
  • the parties' respective indemnification obligations should survive the termination of the contract, at least for a specified time;
  • a party's obligations as to its use and disclosure of the other party's confidential information should survive the termination of the contract, at least for a specified time.

Conclusion

Hopefully, the power and impact that “legalese” can have on the effectiveness of an agreement is made abundantly clear in these examples.  Legalese is not just a cost of doing business to cover risk as is too often thought.  Rather, legalese should be strategically viewed to maximize one's Return on Contracts.

Our last and final article will define and focus on the Financial pillar.

Disclaimer: This article briefly explains the meaning and purpose for improving the effectiveness of commonly used contract terms. This article is provided for informational purposes only, and the above examples are not exclusive and are provided for illustrative purposes only.  Therefore, this article is not intended, and should not be construed, to be legal advice of any kind. Each legal situation is different and is based, among other things, on the particular facts and circumstances applicable at the time and in the jurisdiction in question.  Accordingly, you should consult with appropriate legal counsel regarding any issue for which legal advice may be desired or required.  Please contact Mainspring Consulting Group and/or Raymond J. Averna, P.C. for more information.

ENDNOTES

1.     Contract Readability – Part 2”, December 2010, by Kingsley Martin, http://contractanalysis.blogspot.com/2010/12/contract-readability-part-2.html
2.     Alfred E. Kahn, a Champion of Plain English in Economics by Robert H. Frank, Sunday, January 09, 2011
SERIES TO DATE:

ABOUT THE AUTHORS

Mauro Caputi,  Partner for Mainspring Consulting Group LLC, has a 20-year background in Contracts as both as a consultant and subject matter expert.  This included supporting numerous clients with their Contracts Management Programs.  He has advised close to 50 clients on solutions, policy and process design, and operational governance controls while also providing Delivery Management for global enterprise-wide implementations of variety of Contracts Management applications involving over 20 countries, tens of thousands of users, and supporting millions of transactions annually. Mr. Caputi received both his B.S. in Industrial Engineering, and M.B.A. from Columbia University. He currently serves as Partner for Mainspring Consulting Group LLC.  

Raymond J. Averna, Esq.,  Principal Attorney in the Law Office of Raymond J. Averna, P.C.has extensive legal experience in corporate and business transactions, with an emphasis in manufacturing, distribution and logistics. He has represented multi-national, national and regional companies across such diverse industries as semiconductors, aerospace, pharmaceuticals, cosmetics, nutritional supplements, food and beverage, HVAC and construction. Mr. Averna leverages his 25-plus year experience in legal drafting in formulating and structuring clear, business-minded strategies to help companies achieve their critical business objectives.  Mr. Averna received his B.S. in Finance from St. John's University, J.D. from St. John's University School of Law, and M.B.A. in Finance from New York University, Leonard Stern School of Business.  

Mainspring Consulting Group LLC is a boutique consulting services firm specializing in Contracts Management. Mainspring provides three key services – Implementation, Managed Services and Analytics – that revolve around optimizing the profitability or Return on ContractsTM.  Mainspring takes on the administrative burden of contract management for clients and turns their contractual obligations into real dollars. 

Raymond J. Averna, P.C. is a law firm and Mainspring's business partner dedicated to providing strategic advice and counsel to national, regional and local companies in all phases of corporate formation and operations, commercial transactions and general business matters.  As a trusted business advisor, the Firm provides strategic advice and counsel to corporate executives and senior corporate managers on a variety of legal and business issues, such as supply and distribution relationships, mergers and acquisitions, joint ventures, licensing, federal regulatory compliance, government contracts, real estate sales and acquisitions, and general corporate and business matters.

 
 

Case study shows the Relational Contracting Model may be changing the contracting process

 
What drives Relational Contracting?  Some have suggested building trust among all parties involved is the primary reason.  But many find trust difficult to establish and integrate into their contracts as either a contractual deliverable or a Key Performance Indicator (KPI).  And increasingly, IACCM members find that multiple criteria for success -- not just one - is essential for pursuing a Relational Contracting approach. In simple terms, Relational Contracting is where the parties establish compatibility of interests and define procedures to achieve a mutually successful outcome.
 
 

by Jim Bergman, Regional Vice President, Asia, Australia and Middle East Regions

What drives Relational Contracting?  Some have suggested building trust among all parties involved is the primary reason.  But many find trust difficult to establish and integrate into their contracts as either a contractual deliverable or a Key Performance Indicator (KPI). And increasingly, IACCM members find that multiple criteria for success -- not just one – is essential for pursuing a Relational Contracting approach. In simple terms, Relational Contracting is where the parties establish compatibility of interests and define procedures to achieve a mutually successful outcome.1
 

We saw proof of this recently when IACCM facilitated a workshop in which the Australian Commonwealth's Defence Materiel Organisation's (DMO) Systems Program Office introduced their Relational Contracting Model to the maintenance contractor on a naval ship maintenance project, shortly after the DMO selected the contractor. 

The adopted model builds from IACCM's 'nine tenets of Relational Contracting'.  DMO replaced two of IACCM's tenets with what they saw as more relevant to them.  Table 1 compares the two models.

At IACCM we are encouraged when organizations do their own research and come up with workable solutions.  When organizations like the DMO begin harvesting better strategies, other organizations begin to duplicate them.  That's how encouraging trends evolve.

DMO's Nine Key Criteria for Relational Contracting

IACCM's Nine Tenets of Relational Contracting

  1. Establish Open Communication Channels
  2. Foster Joint Working Sub-Teams
  3. Define and Pursuing Mutual Objectives
  4. Instill and Maintain No Blame Culture
  5. Define Accountability, Responsibility
  6. Pursue Problem Solving Approach
  7. Utilize Continuous Improvement Techniques
  8. Share Success and Challenges across Both Organizations
  9. Create and Tracking Performance Measurement Metrics

 

  1. Risk allocation
  2. Problem solving
  3. No-blame culture
  4. Joint working
  5. Communication
  6. Gain and pain sharing
  7. Mutual objectives
  8. Performance measurement
  9. Continuous improvement

 

 

Table 1. Relational Contracting Models Compared

What they did

DMO commissioned an IACCM-facilitated workshop, during which the customer and contractor agreed to implement and measure their Relational Contracting results using the nine criteria. The relationship team established nine sub-teams to more clearly define and carry out each objective.  After six months (early April 2013), IACCM facilitated a second workshop, in which the relationship team examined results, specifically, to share successes and review the opportunities to improve. 

What they found

Based on what they experienced -- specifically relating to the DMO's maintenance activity -- Bruce McLennan, Director of MSS Strategic Supplier Management Cell in Canberra, Australia, concluded: “The relational contracting approach has proven successful in improving this alignment and assisting greater collaboration between the multiple program participants”.

The team will review this again later in 2013, with IACCM facilitating, to update ongoing progress on the relationship. Meanwhile, each of the nine key teams will continue meeting to ensure the parties are progressing in their areas.  

McLennan knew that the Relational Contracting model was not introduced early enough in the overall contracting cycle, but that did not prevent him from introducing it to achieve benefits later in the project.

Other organizations are changing too   McLennan is not alone in discovering that early introduction is crucial to maximizing the value from Relational Contracting.  More IACCM members are introducing the Relational Contracting approach earlier in their contracting projects.  In fact, as early as the Request for Information (RFI) stage, multifunctional groups and key users are having more fruitful internal discussions and greater acceptance of using Relational Contracting as the targeted contracting model.

Some contracting teams -- once they have ratified Relational Contracting as a potential model for a given project  -- are drafting relevant Relational Contracting content into their tendering and bidding packages.  This new content may include questions for potential suppliers, asking them to prove the quality of their contracting experiences.  Questions can solicit specific case studies of the potential contractor's past problems, e.g., "How would you handle this problem?"

Contracting teams are also reviewing their contract document templates, assessing which terms and conditions are most effective in generating collaborative behavior under the Relational Contracting approach.  For example, they are revising the contract language to include the overall approach to liquidated damages, and the structure and purpose behind performance reviews.  Often, bidders are being alerted much earlier in the process about the customer's intent to run a Relational Contracting workshop after the contract is awarded.

Simply put, it works!  Implementing The Relational Contracting Model is worthwhile, providing it is implemented realistically, with followup meetings to evaluate progress. Overall, those who have used this model are continuing to do so.

For more insights into Relational Contracting, please feel free to visit the IACCM Library or contact Jim Bergman, VP – Asia, Australia and Middle East (Jbergman@iaccm.com).

ENDNOTE

(1)  IACCM article (copyright 2013): How You Can Implement Relational Contracting, by Jim Bergman

ABOUT THE AUTHOR

Jim Bergman is the VP – Asia, Australia and Middle East for IACCM.  He has over twenty years of experience in commercial contracting, initially as a contracts attorney for Amoco (now BP).  During his career, Jim has trained and led contract development and negotiation teams, managed commercial relationship portfolios worth over US$1 billion.  He has also developed contracting processes for Fortune 500 companies.  His efforts have led to direct value generation of well over US$200 million, and many process improvements to his audiences and clients.

To contact the author, please email your question to info@iaccm.com or connect using the IACCM Member Search (login required).

 
 

Championing positive collaborative behaviour in business-to-business contracting

 
Many contracts professionals continue to see their company being forced into unbalanced business relationships, which eventually prove unsustainable, due to a lack of positive collaboration in business contracting. Author Fayola Yeboah looks at practical ways to evolve the contracting culture into a professional and level playing field, creating a foundation for fair and sustainable business relationships. She challenges readers to see the value in taking a bold step away from archaic and somewhat primitive 'take it or leave it' contracting practices and focusing more on principles of fairness and sustainability.
 
 

by Fayola Yeboah, Contracts Manager, Europe for Enterprise-Rent-A-Car

The problem

Many contracts professionals continue to see their company being forced into unbalanced business relationships, which eventually prove unsustainable, due to a lack of positive collaboration in business contracting.

Author Fayola Yeboah looks at practical ways to evolve the contracting culture into a professional and level playing field, creating a foundation for fair and sustainable business relationships. She challenges readers to see the value in taking a bold step away from archaic and somewhat primitive “take it or leave it” contracting practices and focusing more on principles of fairness and sustainability.

We all understand the term 'collaboration', but how many of us can say that collaboration positively influences our behaviours in contracting? The experience of many contracts professionals suggests a burning need to increase positive collaborative behaviour among contracting parties.

One IACCM member commented, “… you'll get clients talking about wanting a partner, and then you're presented with horrendous terms… [historically more so in the public sector but its creeping into the private sector as well]... so it's a bit difficult to see how things will evolve.”

 

The Causes

Although it is impossible to provide a definitive list of causes for negative behaviours in contracting, I have identified seven main causes that I am sure many readers can relate to:

  1. A disproportion of power among contracting parties

This may be due to a company's position in the 'food chain' (i.e. customer vs. prime contractor vs. subcontractor), the size and market dominance of a contracting party's business, or it may be due to choice (i.e. a customer may have several options of subcontractor).

  1. Last minute grabbing for revenue

To hit quarterly targets, the sales managers commit to unfavourable deals to secure revenue, making it very difficult for the contracts professional to then shape a fair deal on paper. Such behaviour can lead to challenging negotiations.  This does little for the relationship between the contracting parties. A cricket analogy by politician Geoffrey Howe sums it up well.  “It's rather like sending your opening batsman… [i.e. the contracts professional]… to the crease, only for them to find that their bats have been broken before the game by the team captain… [i.e. sales].”1

  1. Short-term loss for long-term gain

This is a strategic approach whereby a party may consciously enter into an unbalanced contract and concede to unfavourable and potentially unmanageable terms, because they want to increase their chances of securing future, more profitable business. This makes commercial sense in principle, providing the anticipated long-term gain materialises. Often, however, such strategy leads to a strained relationship bred by an inability to fulfil the contractual obligations and unmanageable risk.

  1. Inexperience

Picture this scenario - a savvy lawyer with years of experience representing party 'x' in negotiations, verses a junior contracts professional representing party 'y'. You could reasonably predict that party 'x' will take full advantage of the circumstances and negotiate an unbalanced contract if fair and ethical collaboration is not central to the relationship the businesses seek.

  1. Pride

If you seek brownie points from peers internally for negotiating an imbalanced agreement favouring your company, your focus is certainly not on collaborative behaviour or on the sustainability of the deal or relationship. Such 'victory' may seem like a win, but will inevitably breed a loss in terms of the ongoing relationship among the contracting parties.

  1. Take it or leave it terms

Terms need to be workable for both parties, not workable for one party and forced on the other party. Not only does this demonstrate a negative attitude to fair collaboration, but after a while, businesses that adopt this approach will get stigmatized for being hard to do business with.

  1. The powerless negotiator

Sometimes the negotiators from each party hold disproportionate power to make decisions. One party tries to find creative ways to contract certain terms, but the other party sticks to a rigid 'one-shoe fits-all' contracting policy. One party tries to construct a workable and fair contract, but the other party is only concerned about avoiding the need to seek internal approval for any deviations of terms.

 

Fairness and sustainability.

A well-circulated quote attributed to Dean Acheson states “Negotiation in the classic diplomatic sense assumes parties more anxious to agree than to disagree”.² This is worth remembering.

  • Do you engage in negotiations anxious to agree, or determined to force your requirements with little regard to fairness or sustainability?
  • Are you willing to truly negotiate to shape a mutually beneficial deal?

An equilibrium is required to ensure the deal works for both parties with a fair allocation of benefits and risk. A mature business should not contract with a supplier on the basis that they are willing to accept an unreasonable share of risk.  Experience proves that this will lead to significant problems during the contract lifecycle. A 'win' should not be defined as the ability to pass all risk on to the other party, coercing them to sign up for something they ultimately can't deliver, with the added threat of countless indemnities and contractual remedies enforceable at the point of failure.

An IACCM blog, Managing trading relationships in the global networked economy states, “IACCM research identified a 20% increase in the frequency of claims and disputes last year”. This is alarming. Businesses tend to wrongly assume that certain remedies in the contract – such as claiming liquidated damages and claiming under indemnities – are unlikely.  When arms are twisted, some businesses will agree to leave such provisions in the contract assuming that the other party will behave reasonably and will be unlikely to invoke such remedies. Statistics clearly prove otherwise; therefore, it is imperative that the allocation of risk is fair. When things go wrong, invoking contractual remedies becomes very real.

Each of us individually can lead by example, influencing positive collaborative behaviours among professionals by considering the following:

  • Professionalism. Contracting is not about you as an individual. It is about adequately capturing the terms of a fair and sustainable business relationship on paper. Koslow states it well, commenting, “During a negotiation, it would be wise not to take anything personally. If you leave personalities out of it, you will be able to see opportunities more objectively.”³
  • Deal shaping. A great deal works for both parties. Another quotation I like is from Harvey Robbins who states, “Place higher priority on discovering what a win looks like for the other person”.4
  • Understanding your subject. You should be comfortable and confident enough to truly negotiate. Negotiation is not about lip service. It means your standard form agreement will take on a slightly altered face but if you are confident and competent, risk will still be contained and the outcome will be a balanced and sustainable contract for both parties.
  • One shoe does not fit all. Yes, it is prudent to comply with contracting fundamentals, and internal contracting policies designed to minimise risk should be adhered to.  But, rather than shaping the deal around the policies, understand the deal on its own merit first and then diligently shape the terms and mitigate the risk accordingly.
  • Risk management A commercially astute party refusing to accept disproportionate or unreasonable risk should not be treated with hostility. Integrity should be at the forefront of collaboration; therefore, never attempt to force a term onto a party that you would not be willing to accept yourself.

 

Contracting Morals

Solicitors (attorneys) abide by a code of conduct and contracts professionals should adopt a similar practice. There are five contracting morals I adhere to.  I believe these are worthwhile sharing as a means to increase positive collaboration:

  1. Preservation. Do not consciously impose terms likely to cripple the other business or place them in a position of significant risk.
  2. Faithfulness. Stay faithful to the relationship you are trying to build and maintain focus on the deal you are trying to shape, especially when negotiations prove challenging. There is no harm in making clear your objective to negotiate a fair a sustainable deal for both parties.
  3. Fairness. Balance risk fairly. Don't set out to create a win-lose situation, reaping all the benefit and leaving the other party with onerous obligations, thus deliberately taking advantage of those thirsty for the business or services/goods.
  4. Transparency. Be fair and honest in negotiations. Transparency in negotiations will allow you to shape a sustainable deal and will develop a relationship of trust between businesses that will create a secure foundation for future business.
  5. Reasonableness. Pressuring a party to agree to something unreasonable because such party may have agreed to it in the past is unethical. This includes pushing for a term laced with risk that the company, in ignorance, may have agreed to in an older contract. Businesses evolve.

Conclusion

Contracts professionals must look after the best interest of their companies, and this can and should be done in an ethical, fair and balanced way. Championing positive collaboration goes a long way to securing successful long-term business relationships, which is much more beneficial than short-term, short-lived gain. Although businesses operate in a competitive market, I still believe that fairness and sustainability is central to successful collaboration.

END NOTES

1.  Sir Geoffrey Howe, former UK deputy prime minister, employing a cricketing metaphor to slate Margaret Thatcher's approach to British negotiations on EMU in Europe, November 1990.

2. Dean Acheson, an American Statesman and lawyer born April 11, 1983.  â€‹(http://www.searchquotes.com/Dean_Acheson/Negotiation/quotes/)

3. Brian Koslow, an author of motivational literature. (http://www.finestquotes.com/author_quotes-author-Brian%20Koslow-page-0.htm)

4. Harvey Robbins (http://easenegotiation.com/negotiation-quotes/)

ABOUT THE AUTHOR

Fayola-Maria Yeboah has worked as a contracts professional for market leaders in defence, pharmaceuticals and oil & gas.  She has a solid legal educational background and holds membership with the Chartered Institute of Legal Executives. Fayola recently commenced a new role as Contracts Manager, Europe for the multi-billion dollar international business Enterprise-Rent-A-Car. She states, “Enterprise is a very exciting company. The leadership is truly exceptional and there is a real entrepreneurial spirit among employees. As the first dedicated Contracts Manager employed at the European headquarters, I have the opportunity to add long-term value to an outstanding business.”

 
 

Government contracting adjusts to the 21st Century

 
In this brief article Roselle Harde highlights some of the changes she is observing in public sector contracting and gives examples of how this may impact industry more generally. IACCM is conducting a brief survey to compare public and private sector attitudes and approaches to contracting and commercial management.
 
 

by Roselle Harde Senior Consultant and leader of Government Programs, IACCM

In this brief article Roselle Harde highlights some of the changes she is observing in public sector contracting and gives examples of how this may impact industry more generally. IACCM is conducting a brief survey to compare public and private sector attitudes and approaches to contracting and commercial management. Please share your opinions by visiting the IACCM survey; all participants will receive a copy of the results.
 

Governments worldwide face fast-changing economic and social conditions, forcing us to re-think traditional approaches to public procurement.

With many economies under pressure, public spending cutbacks are very much the order of the day. While this inevitably results in pressure to reduce prices, that alone cannot deliver the savings we need. And with continuing pressure to invest in new services and improve others, we need fresh and creative approaches including a wave of 'performance-based' outsourcing contracts as well as new forms of public-private partnership and joint ventures.

Governments are also at the heart of a growing range of public policy initiatives.  Some lead to regulation, while others are more about social and economic policy goals. Many programs are geared towards increased inclusiveness -- for example, growth of business with small and medium enterprises. Some aim to boost local economies -- for example, throughout Latin America the tendency is to use public procurement as way to drive growth and jobs for national businesses.

This environment greatly stresses existing procurement polices, contracting models and skills. Francis Maude, head of the UK's Cabinet Office recently observed that many in procurement are more comfortable with managing a process than they are in making commercial judgments. Public procurement rules tend to make this a very process-driven sector and the possibility of supplier appeals and protests often generates a safety-first attitude. The existence of public audit bodies also creates reputational risks unique to this sector and induces caution.

Moreover, the economic environment means that for many, change is not optional. In some cases, this simply results in tinkering with existing rules (e.g. the overhaul of EU Public Procurement); in other cases public sector agencies are open to truly innovative ideas and approaches. For IACCM, this has meant growing engagement with government personnel around the world. Significant efforts are underway to raise understanding of commercial sector attitudes and skills. Many organizations are showing interest in undertaking IACCM training or skills assessments.

We have also seen a very open-minded attitude to new contracting models in areas such as performance-based or relational contracting. Government is turning to new levels of training and seeking to generate commercially aware leaders, through programs such as those at Saïd Business School at the University of Oxford in the UK, Queensland University of Technology (QUT) in Brisbane, Australia and George Washington University in Washington, DC, US.

In many respects, Governments and their contracting personnel actually appear more open to innovation at this time than their private sector colleagues. In part this may be due to the scale of pressure, but it also reflects the unique ability of Government to impose new thinking onto the market. At IACCM, we find that aspect of working with Government especially exciting and important. We welcome the chances to share our research and learning to assist in generating improvements to contract and commercial practice that can benefit all practitioners and generate better trading outcomes.

ABOUT THE AUTHOR

Roselle Harde is a Senior Director on the IACCM team and specializes in commercial and contract management advisory services and programs for public, commercial and non-profit entities. She possesses extensive experience building and leading interdisciplinary teams for a number of the top successful Fortune 100 companies and collaborating with government contractors and senior acquisition leaders of Federal Government agencies. Ms. Harde is the recipient of the 2013 Executive Woman of the Year award from the National Association for Professional Women and the Worldwide Who's Who for Excellence in Contract Management in 2012.  She is a graduate of the Contracting and Procurement Programs from The George Washington University and The American University in Washington, D.C.

To contact the author, please email your question to info@iaccm.com or connect using the IACCM Member Search (login required).

 

 
 

Academia makes ground-breaking appointment in contract management

 
It was with great pleasure that we learned of the appointment of IACCM member Rene-Franz Henschel to a full Professorship within the Law Faculty at Aaarhus University in Denmark. Rene was last month appointed formally by the Dean of School of Business and Social Sciences. The 5-year professorship is specifically made "to develop a particular area of research within the legal sciences". Rene's particular focus is Contract Management and Pro-active law. -- Tim Cummins, CEO IACCM. In his interview with Tim Cummins, Rene-Franz Henschel expands on the reasons for his application and why he believes that contract management is an important area of study for the legal community.
 
 

It was with great pleasure that we learned of the appointment of IACCM member Rene-Franz Henschel to a full Professorship within the Law Faculty at Aaarhus University in Denmark. Rene was last month appointed formally by the Dean of School of Business and Social Sciences. The 5-year professorship is specifically made "to develop a particular area of research within the legal sciences" . Rene's particular focus is Contract Management and Pro-active law. -- Tim Cummins, CEO IACCM.

In his interview with Tim Cummins, Rene-Franz Henschel expands on the reasons for his application and why he believes that contract management is an important area of study for the legal community.

The Future of Law: legal skills and knowledge expanding

Even before he applied, Rene's goal was clear.  He recalls, “In my application I wrote that I was focusing on a) traditional legal science, and b) Contract Management and Proactive Law. I argued that it was not sufficient within my legal areas to focus only on traditional legal methodology, but also on interdisciplinary research, i.e. Contract Management and Proactive Law.”

Q: Rene, what is it that you are proposing to add to the existing syllabus for law students?

A: If you look at a traditional law faculty, most research is also traditional – that means court based in its thinking. The majority of law graduates were traditionally employed in serving the courts, in public service and practice. In countries where the rule of law prevails, the courts have been the place where recourse occurs, where judgment is applied.

Increasingly, this narrow view has become a problem, specifically in the areas of commercial and contract law. In these fields, when both parties are businesses, they have freedom of decision – for example which laws or jurisdiction to apply, whether to use the courts or to opt for alternative dispute resolution. This impacts traditional assumptions; but more than that, today's business models also do not follow traditional patterns.

For example, the teaching of existing law and precedent tends to focus on the old ways of dealing – essentially in product commodities, within a single jurisdictional boundary. The law is struggling to catch up with the new world of services, of complex trading environments, of international and multi-national transactions and regulations.

Traditional concepts don't take account of how closely bound and inter-dependent the parties may be. And add to this that the courts are often too slow, they do not offer a practical source of resolution.

So in summary our syllabus must address these structural shifts in our economies that are making courts less relevant and are demanding new approaches to contract law and associated training. The skills of the law student must be far more inter-disciplinary; there must be wider understanding of the real world environment in which learning has to be applied.

Q: In your view, should we expect lawyers to be the experts in this new environment, or is the training more to ensure they – and their traditional thinking – are not a barrier to getting business done?

A: That is a difficult question. I think we need more clear answers to how this can be done, how this new world changes the role and impact of contracts and lawyers. So new research must assess the practical effects of contract terms, of related processes and organizational models. We need to be able to answer whether lawyers should take a more central role or be part of a new high performing, inter-disciplinary team. Behavioural science, economics, psychology all need to play in our research and assessment.

Q: So was this thinking, this goal of examining the future role of the lawyer, part of the decision to award you with the new professorship?

A: Yes. As part of my application, I submitted material on contract management and proactive law and this was accepted - the panel accepted this need for interdisciplinary research – that this is valid legal research.

Q: Would it be fair to depict a big difference between the old world being strongly focused on 'the contract' versus the new world where there is more focus on the process through which contracts are created and their impact on the processes they support?

A:  Yes, I think so. Traditional education focuses on case law; but it also tackles understanding of the impact of process and behaviour on court decisions. So in that sense appreciation of process has been understood, but only in the context of its potential impact on litigation outcomes.

Teaching and research have not addressed the role a lawyer should have in advocating what should be done and how, in order to generate better business results or outcomes. We have tended to focus more on what not to do.

Should future lawyers have a greater role in defining and promoting behaviours? Clearly there are areas of regulation that are pointing that way. Also what about the clauses or terms included in a contract – what economic impacts do they have? Process, behaviour, economics are all pertinent – indeed essential – areas for the modern lawyer.

Q: Do you think that the existing legal community will support this direction – or see it as a threat?

A: I feel there is a change already under way, in both law firms and in-house legal teams. For example, law firms are focusing on more in-depth knowledge – understanding industries, specific business topics and challenges. In seeking to become more proactive they are having to expand their depth of knowledge, not just with regard to the law, but also the client's business operations and processes.

Another factor is the growing integration of tools to allow more proactive steps and law firms that are setting up network groups in areas like contract management, offering advisory or outsourced services in this area. And when you look at in house groups, they are being forced to get more involved because of business reality, because of the scale and nature of today's business risks and the speed with which change is occurring. It is no surprise that these law firms and in-house groups are frustrated if new hires don't have the knowledge and understanding to contribute to the real world of business.

Organization, management, processes – lawyers today have to have more understanding. Sometimes this will be built within the legal community, sometimes through new alliances or hiring new skills – for example, law firms merging with consultants or hiring experts in commercial disciplines such as pricing.

Q: What are your plans for immediate focus?

A: I will write articles on contract management – I plan to start with something on the history of contract management and then its underlying theory and methodology. I'll be working to attract PhD students with industry experience; we need to start work to identify the future needs of law degrees, what changes there must be to future legal services.

Q: What role do you see for IACCM in this emerging environment?

A: IACCM plays an extremely important role - exchanging information on best practices, highlighting needs, combining needs with research to generate understanding of what works, how to avoid mistakes, identifying alternatives that have positive effect. It must continue its work on promoting contracts as tools in driving effective business outcomes. And of course its core purpose of establishing Contract Management as a profession. It will be a strong profession in the next 10 years, a huge area of focus, so needed by companies today.

___

For further information, readers might find this article valuable. It closely mirrors a number of the key points Rene makes during this interview....Contracts As A Remedy For Business Performance - by Tim Cummins - originally published March 5, 2013 in the Commitment Matters blog.

 
 

If relationship management is so easy, why do so many relationships fail to deliver?

 
Recognise that sinking feeling? You've spent months selecting a strategic partner. Then came long nights, weekends negotiating the strategic agreements. Much talk of 'win-win', 'synergy', 'partnership'. Executive teams getting excited about generating huge stakeholder value. Photographs taken of contract signing, champagne opened, speeches made.  But too much time passes, raising your fears. Has yet another relationship management effort failed to deliver? If so, what went wrong and what happens next? IACCM's Vice President of Development and Training for Europe and Africa, Paul Mallory, unpacks what might be hiding behind the problem and how to prevent relationship failure.  He reviews benefits of IACCM's Supplier Relationship Management (SRM) learning programs.
 
 

By Paul Mallory, VP Development and Training, Europe and Africa

Recognise that sinking feeling? You've spent months selecting a strategic partner. Then came long nights, weekends negotiating the strategic agreements. Much talk of 'win-win', 'synergy', 'partnership'. Executive teams getting excited about generating huge stakeholder value. Photographs taken of contract signing, champagne opened, speeches made.  But too much time passes, raising your fears. Has yet another relationship management effort failed to deliver? If so, what went wrong and what happens next?

IACCM's Vice President of Development and Training for Europe and Africa, Paul Mallory, unpacks what might be hiding behind the problem and how to prevent relationship failure.  He reviews benefits of IACCM's Supplier Relationship Management (SRM) learning programs.

So many strategic business relationships seem to fail to deliver on expectations. Certainly, in the field of outsourcing, and often in the case of joint venture companies, mergers and acquisitions, we know that failure is at least as likely as success.

Perhaps expectations are simply too high at the outset, driven up by the 'conspiracy of optimism' that causes both sides to allow their hearts to rule their heads, in their rush to get the deal done (often at what proves to be an unacceptable cost, long-term).

Assuming for a moment that you had a well thought-out business case from the beginning for both sides (admittedly a big assumption), then we have to ask the question: why did this strategic relationship fail to deliver the expected value?

To start with, contracts do not manage themselves. If you sign a complex, strategic contract, and file it in the bottom drawer of the desk, returning months later to check whether the contract was successful, don't be surprised if the deal has gone off the rails. Even more can result from such a misguided assumption:

  • Out-of-control cost and deliverables  The scope of the deliverables or services will have expanded massively, with neither side being willing to pick up the resulting extra cost or pay for the necessary extension to the program duration.
  • Confusion and disputes   No one will be clear about who asked for, approved, or validated changes to the deal. Issues and disputes will arise.

Proactive, in-life contract management is essential to ensure successful outcomes from the deal. For the same reason, proactive relationship management is required, to ensure expectations of value from relationships are met.

Relationship management takes a broader, portfolio view of our trading relationship with a particular supplier or customer, and asks: 'how can we uncover more value from this relationship, for both sides?' Like any professional discipline that gets great results, you need a highly developed and consistent approach. Or -- to quote one of my respected Procurement colleagues -- “capability means nothing unless it's accompanied by performance!”

Successful Relationship Management is not something just anyone can pick up and do. It is different from Contract Management and Procurement. It requires the ability to lift one's head out of the details, and see the bigger picture.  Claiming service credits and penalties from a supplier might be fun, but it is not strategic.

Relationship managers must be able to form a long-term vision for the relationship, and inspire others to want that too. They need to take people on that journey with them, using skills of influencing, persuasion, diplomacy and the ability to motivate. In other words, relationships can't be successfully managed through traditional 'command and control' approaches, or by citing regulation as a reason for compliance.

Organisations and executives may not fully understand what relationship management is, and so may have unreasonable or incorrect expectations of it.

Expectation management is a key skill to master!

The key here is less about the outcome experienced, and more about the expectation that preceded it!  We must set the expectations of our stakeholders appropriately! Think of it this way: 'under-promise, over-deliver'.

If we think about our own experiences as consumers, we can readily recognise the importance of expectation management. If, like me, you have ever been in an airport and told that your flight is landing, only to be told several hours later that the flight never left its previous airport, you too would be disappointed!

I think of expectation management like this:

  • Expectations met = satisfaction
  • Expectations not met = disappointment
  • Expectations exceeded = delight

Because this is an immature discipline, sources of best practice and advice are hard to find.  This is exactly where IACCM's networking strengths can help you develop a way to connect with like-minded professionals in forums, sharing and examining experiences and practices. Shared learning and inspiration will then benefit all involved.

Supplier Relationship Management (SRM) online learning and certification

IACCM offers several SRM learning programs designed to equip you with the skills and knowledge you need to implement SRM practices effectively within you organization. Participants are finding that relationship management can be greatly improved if we become more skilled at:

  • Segmenting our relationships, and focusing our relationship skills on the truly strategic trading partners that matter most to us;
  • Having a clear business case for SRM, enabling us to be clear about the additional value the relationship will add to the organisation, over the medium to long term;
  • Creating agreements with frameworks that support, rather than undermine, strategic relationships;
  • Operating well-designed effective governance processes;
  • Measuring success using balanced scorecards and other tools;
  • Developing our personal attributes in relationship management, to align the vision and goals of all concerned

Learn more at SRM ONLINE LEARNING or SRM CERTIFICATION

Become an example!  The challenges for relationship managers are not going to get any easier, in a world of increasing complexity and accelerating change. Now is the time to start networking and learning from professional colleagues around the world. After all, isn't that the kind of innovation and collaboration we demand from our strategic partners?...

ABOUT THE AUTHOR

Paul Mallory is responsible for serving members in Europe and Africa, as well as developing relationships with corporate members in the region. He also leads IACCM's professional development services globally, including learning, skills assessment and certification services.  

To discover more about IACCM's highly successful Supplier Relationship Management program or to contact the author, please email your question to info@iaccm.com or connect using the IACCM Member Search (login required).

 

 
 

What's the secret to a successful IACCM conference? Getting to know members!

 
As head of Events & Partnerships, Carina Kuhl manages the overall development and execution of IACCM’s Annual Member Conferences in The Americas, Europe & Asia. In this article, Carina describes the goal of her conference development:  to enable participants to push boundaries and become key influencers and value creators for their organizations.  Her favorite task is interviewing IACCM members, because a successful interview is the first step in helping members get where they want to be.
 
 

by Carina Kuhl, Vice President Events & Partnerships, IACCM

As head of Events & Partnerships, Carina manages the overall development and execution of IACCM’s Annual Member Conferences in The Americas, Europe & Asia. In this article, Carina describes the goal of her conference development:  to enable participants to push boundaries and become key influencers and value creators for their organizations.

Thomas Edison never knew that his famous quote --  "I find out what the world needs; then I proceed to invent” -- applies to all of us. Listening to customers’ needs and realizing results for them, is what we all do.

As the newly installed head of events at IACCM, I interview members and ask them to describe their challenges and opportunities every day. I evaluate accumulative results, then translate these findings into a conference program. Likewise, as a commercial or contracting professional, you identify the needs and requirements of your (internal) customer and convert these into a contract and Statement of Work (SOW).

What we do isn't 'inventing' per se, but there's a lot of skill needed to be a 'go-between'. Someone who can understand market needs and translate these into workable, effective relationships. That's what we do as contract and commercial professionals in a nutshell: We create a bridge for success on both sides of the equation (assuming we do our jobs well).

IACCM speaks a lot about change and advancing the contract and commercial function. Thisis similar to the ongoing strategic transformation in indirect procurement, which I have closely observed over the past 6 years in developing ProcureCon events.  I hear many of you speaking about becoming more effective in handling daily tasks. You balance the heavy workload placed upon you in recent years and you wish to shed the tactical activities, allowing you to focus on where the Contract Management (CM) function can add greater value to the organization.

Balancing your heavy workload is always important: Members who have attended one or more of our conferences are telling IACCM that they need that 'bread and butter' layer of an IACCM conference.

In fact, I cannot help but mention the October 8-10 Americas 2013 Conference in Phoenix, AZ, an event I’m coordinating.  It is a perfect example of a program that shares best practices, helping participants discover best ways to do all this and more:

  • Establish commercial norms;
  • Simplify our contracts;
  • Effectively handle claims and disputes;
  • Deal with cultural considerations in negotiations and contract development;
  • Manage global teams;
  • Run an RFP effectively;
  • Write a good SOW;
  • Conduct performance and compliance reviews.

However, becoming more strategic is where things get interesting in my opinion.

I think advancing the reach and 'commercialism' of contracting professionals is key to value creation and the future success of the function. That’s why our conference program places equal emphasis on addressing challenges such as:

  • Getting to the negotiation table sooner to add greater value throughout the process
  • Relating post award lessons learned to pre award practices for continuous improvement
  • Managing contract outcomes and compliance more effectively for greater organizational gain and decreased risk exposure
  • Enhancing CM's awareness of the organization's strategic agenda and ability to identify and capitalize on value creation opportunities

Only if contract professionals add tangible value that cannot be obtained from any other function, do we have a reason for existence. But it does require a major step change. We need to attract team members with general business skills who can sell CM's new image as a value-partner to stakeholders. Who can pry open doors that have been shut tight in the past. Who can break down walls so we don't have to toss our contract terms and conditions over to the other side, but rather embark on a conversation with our cross-functional peers to assess risk and reward opportunities and translate these in our relational contracts.

We need to find ways to empower the front lines, measure contract performance without looking in the rear-view mirror. We always need to challenge the status quo to seek improvement - since markets and organizations never come to a standstill either these days. And we need to invest in technology so we can focus on enhancing CM's core differentiators instead of non-core tasks.

We know this is a tall order. Thankfully, IACCM is here to support you every day of the year. With:

  • 7,000+ pieces of content in the library - research and benchmark reports, articles, presentations on all things commercial and contract management
  • A vibrant, global community of nearly 30,000 members in 152 countries from 10,952 cross-industry corporations
  • Workshops, seminars, conferences, learning programs and certifications throughout the year, around the globe
  • A growing core team of 15 professionals, here to serve and consult with you, our member. I am glad to be part of that team and hope to serve you well.

In turn, I hope you'll answer the phone when I ask you for direction on creating our member events - or to even find you picking up the phone to volunteer your accomplishments and learning needs to me.

At any rate, all topics I touched on above were shared with me by your fellow members. They form the topics of the upcoming Asia Pacific (Sept. 3 & 4, www.iaccm.com/asia13) and Americas (Oct. 8-10, www.iaccm.com/americas conferences events.

We hope you'll be able to attend one of these essential peer-to-peer events to network, learn, advance and celebrate the CM profession.

Carina Kuhl, VP Member Events & Partnerships

ckuhl@iaccm.com, tel. +1.203.403.1978, www.iaccm.com

Connect with me: www.linkedin.com/pub/carina-kuhl/3/25b/298/

ABOUT THE AUTHOR

Carina Kuhl, VP Events & Partnerships, IACCM (International Association for Contract & Commercial Management)

As VP of Events & Partnerships, Carina manages the overall development and execution of IACCM’s Annual Member Conferences in The Americas, Europe & Asia. Her mission is to increase member engagement and satisfaction with IACCM interactive content offerings (conferences, workshops, webinars, ‘Ask the Expert Calls’). She plans to focus on enhancing strategic partnerships and alliances with external organizations from both a co-marketing and sponsorship perspective.

Over the past 12 years, she successfully developed, maintained and, at times, revived a varied portfolio of high-profile industry exhibitions and conferences, with attendance between 150 – 3500 persons and revenues ranging from $300.000 to $3 Million at WBR USA (Worldwide Business Research), Institute for International Research (IIR) Exhibitions, IIR USA & IIR Amsterdam.

Commenting on her role as a dedicated head of events for IACCM, Carina explains, “To mitigate risk, IACCM had been working with a third party conference organizer for the past four years. Although the times remain unpredictable, we feel it is time that we take full ownership again of our annual conferences. This way, we can fully control all content and execution to better serve our members.”

To contact the author, please email your question to info@iaccm.com or connect using the IACCM Member Search (login required).

 
 

Who are we at IACCM?

 
This month, we feature Sandra Lewy, Research and Development Manager, IACCM, Bournemouth, UK. She is involved in the management of IACCM research opportunities, identifying market trends and helping students from around the world on their final projects. She also coordinates the Ask the Expert webinars and helps create the IACCM learning programs.
 
 

Sandra Lewy

This month, we feature Sandra Lewy, Research and Development Manager, IACCM, Bournemouth, UK.   She is involved in the management of IACCM research opportunities, identifying market trends and helping students from around the world on their final projects. She also coordinates the Ask the Expert webinars and helps create the IACCM learning programs

 

Q       What prompted you to join IACCM?

While studying for a Masters in Supply Chain Management at Coventry University, UK, IACCM helped me to research my final project. After completing my course, Tim Cummins (IACCM's CEO) contacted me to say that IACCM would be recruiting a staff member in the UK - and the rest, as they say, is history!

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

My favorite part of the job is having contact with our fantastic members from around the world!

The most challenging aspect of the job is the unusual hours - it is not uncommon to be on a webinar in the early hours of the morning or late at night. But on the other hand, IACCM offers great flexibility.

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

I'm particularly proud of the SRM (Supplier Relationship Management) learning program, which I was fortunate to be involved in from the start. It gave me an opportunity to put my knowledge from university into practice.

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.

Working from home for a global association, I rely heavily on technology to stay connected. While hosting our weekly Ask the Expert Webinars, I'm often reminded of the importance of a reliable computer and internet connection.

On one occasion, while an expert from Denmark was presenting on a webinar, I noticed that his laptop battery was running very low. I mentioned that he may want to switch to mains power. He promptly found a wall socket, removed the plug that was in the wall, and plugged in his laptop. Unfortunately he had just unplugged his internet router - which left me and Jim Bergman to entertain the several hundred webinar participants for twenty minutes while he reconnected. We even considered singing to prevent the audience from growing restless!

Q       How did you go about marketing IACCM internationally?

Originally from Poland, I always make an effort to get our Eastern European peers involved in the association. We are seeing far more people from the region joining the association, which is great as we strive to be truly international with equal representation in our membership from around the world.

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

Since the age of 16, I have always been employed. I started out as an Avon 'cosmetics consultant'. Throughout my school and university studies, I also worked as a private tutor. I have done a lot of random jobs in between, including once cooking dinner for 60 elderly people at a care home!

But my life path changed when I worked in the UK over a summer and met my husband, leading me to apply for a scholarship to study at university in the UK, which in turn led to finding out about IACCM.

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

As I was the first full-time IACCM employee in the UK, I was on my own at home with two guinea pigs for company. After five years, I am still working from home, but there are now seven other employees in the UK, and I have a little toy poodle to keep me company (Bella, the IACCM mascot, pictured right - hard at work)

Q       Well, let's say hi to Bella!  

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

Being eight months pregnant, I would like it if men could carry the baby sometimes!

Q      We totally understand!  And, congratulations!  I think we have a comment at the end about the little one soon to arrive!  

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

I hope that our members keep striving to learn more. We do so much original research, and the more people that get involved, the greater the benefit for the whole community.

Q       Where were you born / spent the biggest part of your childhood?

I was born in Lodz, central Poland, which is where I lived until moving to the UK in 2005.

All of us at IACCM share in the delight of Sandra having her first child. While we will miss her when she is out for maternity leave, this will actually be the first time an IACCM employee has given birth while working for the Association –so we all feel a sense of ownership and pride in the first ‘IACCM Baby’! – Tim Cummins, IACCM CEO

 
 

 
 
 

2013 Editorial Board

Maria Arraiza-Monteux, Capability Program Manager, Dupont Contract Manufacturing Center of Competency, US
Guillaume Bernard, Contract and Claim Manager, Schneider Electric, France
Flora Cabean, Contracts Supervisor, Global Business Technology, Procurement & Contract Services, VF Corporation, US
Grant Collingsworth, General Counsel, SciQuest, Inc., US
Stephen Davis, Contracts & Commercial Manager, CGI, UK
Famil Garayev, Supply Chain Category Manger, Chevron Canada Business Unit 

Rene Franz Henschel, Professor, Aarhus University, Denmark
Melissa Jansen, Contract Management, Accenture, South Africa
George Neid, Manager, Program Contracts, Missile Systems, Raytheon, US
Fayola Yeboah, Contracts Manager, Entrprise Rent-a-Car, Europe

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