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

Contracting Excellence Magazine - Dec 2009

 
 

 

IACCM Board Election Results Announced

 
Four positions on the IACCM Board of Directors were due for election this year. IACCM announced the results of its ballot of the members on December 15th.
 
 
A total of 2,197 votes were cast in the election for IACCM Board Members. The successful new board candidates are: 
  • Adrian Furner, Commercial Director, BAE Systems
  • Nancy Nelson, Global Contracts Director, CSC
  • Ken Riley, General Manager, Supply Chain Management, Chevron
  • Margaret Smith, Executive Director, Contract Management, Accenture
Tim Cowen was confirmed in his Board position as retiring Chair and will serve in this capacity for 2010.
 
In a close-fought election, 12.7% of eligible members cast a vote. The new Board Members join an influential and experienced team (see www.iaccm.com/board.php for a full list)
 
 

 


 

Highlights of 2009: A Turbulent Year

 
Contracting – and the role of contracts in business performance – gained growing recognition in 2009, as academics started to produce evidence that the process of contracting and the content of the contract make a serious contribution to trading outcomes.
 
 
Introduction: A Turbulent Year
 
Contracting – and the role of contracts in business performance – gained growing recognition in 2009, as academics started to produce evidence that the process of contracting and the content of the contract make a serious contribution to trading outcomes. And this is reflected in the work of top practitioners who are leading fundamental change in the role and status of contracting and contract management within their organizations, delivering eye-catching improvements to bottom-line financial performance.
The banking collapse and worldwide recession finally brought home the realization that globalization has dramatically increased the complexity of today’s trading conditions. The gravy train of commoditization and the belief that international markets offer endless sources of lower cost supply suddenly ground to a halt, as did the creation of false wealth in a banking system that generated unending paper profits.
In 2009, it became starkly evident that management systems, measurement systems and underlying market structures were not designed to cope with the many uncertainties and mysteries of today’s technology-driven global commerce. Businesses face disruptive change on a scale and speed that is unprecedented; and the traditional levers through which trading relationships and their associated risks are managed has proven inadequate to the task.
This has created the need for contracting to take on a new role in ensuring greater understanding between trading parties and within supply chains, providing a business assurance discipline and  offering a framework for the management of change and the delivery of innovation. 
What Has Changed?
 
The worldwide economic downturn revealed a range of endemic weaknesses in trading relationships and the ways in which they are managed. For example, in the context of the conditions affecting those relationships:
·         Efforts to forecast supply and demand have broken down, leading to rapid peaks and troughs in commodity prices and in labor costs.
·         Individual industries have experienced massive volatility due to an inability to anticipate demand or understand risk. Examples include oil and gas, financial services and aerospace and defense. 
·         New technologies are creating frequent disruption – at the start of the decade it was the dot-com boom and today it is the emergence of cloud computing.
 
In the context of traditional levers that are used for managing trading relationships:

·         Actions are no longer hidden. Increasing transparency has resulted in new levels of scrutiny for corporate and public sector behavior. The quality and integrity of trading relationships is under a new spotlight, leading to unprecedented interference and expectations of far higher ethical standards. The scale of settlements or fines being levied on companies such as Pfizer, Intel and Credit-Suisse are wake-up calls to executives everywhere that their trading standards and practices must improve – and that they are also responsible for failures in their extended supply chain or distribution networks.

·         The law cannot any longer cope with global commerce. The challenge is in part about volume, but also it is about the anachronistic reliance on tribal legal systems that themselves become a source of dispute. Arbitration and mediation are becoming far more prevalent and starting to influence the content and structure of contracts.

·         ‘Cozy relationships’ simply don’t work. So many key relationships were based upon personal ties at senior levels. Today’s competitive environment has pushed many organizations into complex cross-border transactions where personal knowledge and relationships play little or no part and where cultural divides create a gulf of potential misunderstanding. Many relationships are today at the organizational level – yet systems and procedures to support communications and reporting have not caught up.

·         Traditional contracts are still in transition from a world dominated by products to a world dominated by services. The old world of caveat emptor and input-based value analysis has largely disappeared in many industries, yet contract and negotiation behavior has not adjusted to reflect the need for outcome-based measurements and commitments.

 
The Impact On Contracting
 
In each of these areas, contracts and contracting procedures play a major role. For example, the inflexibility of traditional contracts proved a serious inhibitor when addressing the recession. In the words of one top executive: “2009 has been about reacting quickly and using market intelligence / cost models to rebase our contract pricing in line with the environment. This has meant challenging contracts we put in place in good faith over the past years .... (We used our market power to enforce change), but this is no way to run a business.”
Governments worldwide have been among the first to recognize that contracting practices and structures are key to future success. Driven by the need to drive greater efficiency and to avoid continued high-profile project failures, there has been a clear trend to push for reform. Perhaps the most public of these was the Obama administration’s contract reform initiative announced in March 2009, but there have been many other, less publicized efforts. For example, in November 2009 the UK’s National Audit Office highlighted the weakness of public sector commercial and risk management skills in a comprehensive report on government procurement. Countries ranging from Norway to the Netherlands, Canada to Chile and Australia to Japan revealed growing interest in the need for improved contracting skills and contract structures.
As they struggle to deal with the pressures for increased regulation and higher ethical standards, business leaders have sought to introduce quasi-contractual ‘codes of practice’ to govern their own organization and also the standards expected of their supply base. Increasingly, these standards are flowing through to contracts. For example, another senior manager comments: “I am seeing a greater concern for ‘green contracting’ ... environmental factors are becoming an important consideration in the proposal evaluation stage, so much so that it is often on a par with price and performance factors for evaluation of suppliers”. 
The Opportunity – And Challenge - For Procurement
 
All this uncertainty and change has revealed the urgency of adopting more advanced procurement methods . Commoditization, compliance, e-auctions are but foundations for a much more complex web of relationships that must be enabled for business to flourish. Indeed, these blunt instruments of control, accompanied by skill sets designed for a different purpose, have been the cause of recurring problems in trading relationships. Many experts now acknowledge that such approaches have undermined trust and collaboration, driving behaviors that are focused on unit costs rather than business value.
2009 saw a massive shift in executive interest towards post-award contract and relationship management. This in turn exposed the need to strengthen many contract and negotiation processes, expanding the limited focus on acquisition price and the allocation of legal and financial risk. Contracts were found wanting when it came to enabling flexibility or encouraging transparency. 2009 saw growing calls for performance management and metrics that offer greater insights and understanding, reducing the tendency towards reactive or confrontational behaviours.

But Sales Contracting Must Also Change ...

Businesses exist to sell and there should have been far greater pressure to think strategically about the portfolio of trading relationships, both buy-side and sell-side. Many lawyers and contract managers remain complacent to the double-standards of contracting, with their procurement terms and sales terms deeply incongruent. Such inconsistency in what is deemed ‘reasonable’ has often made contract negotiations a frustrating activity where efforts are diverted to battles over risk allocation on liabilities, indemnities, intellectual property rights and confidentiality, rather than the key issues of scope, goals, change procedures and performance management.
In many organizations, this diversion of contracting into a low-value confrontation on the consequences of failure discredited ‘the contract’ and those associated with its creation. Far too often, they became depicted by others in the business as engaged on pedantic issues that threaten the deal and the relationship. While 2009 saw a continued trend for contracts and legal groups to become ‘business enablers’, an absence of strategy, a focus on individual deals and a reluctance to adopt modern technologies still leaves the perception of a community that has lost sight of its purpose. Far from rising to the challenge of our new and exciting world, too many Sales Contracting, Legal and Procurement groups appear reluctant to understand its implications. In the words of Nobel Prize-winning economist Paul Krugman: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
In top-performing organizations, we are observing executive management urging or supporting reform in the work of lawyers, contract managers and procurement staff, driven by redefined goals, measurements and areas of accountability that reflect the new market conditions.

A Summary Of 2009

As the decade draws to a close, the highlight of the year with respect to contracting is perhaps the realization of how important it is as a business discipline .... and the urgency for it to improve. In my introduction, I mentioned the work of academics and top practitioners in this field. Their contribution is key, because in the end it is academia that brings respectability to new ideas and it is practitioners who demonstrate their practical application. Academics are the ones who conduct the authoritative research and teach the leaders of the future. Practitioners prove that innovation is worthwhile. Hence for me, the highlight of the year is the work of those top academics and leading-edge practitioners who are grasping the critical nature of contracting. They are building on the 10 years of work that IACCM has undertaken in its efforts to transform and gain recognition for this area of business practice and competency.
Therefore I end my highlights by acknowledging several of those academics whose work may prove the most inspirational on our journey to the transformation of contracting, and also by pointing to some of the IACCM research that is starting to illuminate our path to the future. Throughout the year – and continuing in 2010 – IACCM will continue to highlight the companies and the practitioners who are leaders on ‘contracting excellence’.

The Academics
Professor Oliver Williamson gained worldwide recognition by jointly winning the Nobel Prize for Economics. His work on transaction costs and the overlooked area of behavioural impacts in trading relationships is inspirational in challenging today’s narrow, price-based calculations of economic value.
Professor Leslie Willcocks produced a stimulating paper on collaboration and innovation, in which he highlights the need for contracting to become a core competency in any 21st century business seeking to compete successfully in global markets.
Professor Morris Cohen led a research team that for the first time created a coherent economic case for the superiority of performance-based contracting, versus traditional pricing and contracting models. He demonstrated that such an approach can yield not only lower costs and higher margins, but also acts as an incentive to innovation.
To this list of top researchers, I must add the names of others who are thought leaders, catalysts and inspirational in their support and enthusiasm for the field of contracting innovation and excellence:
Rene Henschel (Aarhus School of Business, Denmark)
David Lowe (Manchester Business School, UK)
Henrik Lando (Copenhagen Business School, Denmark)
Rob Handfield (North Carolina State University, USA)
George Seidel (University of Michigan, USA)
Kaisa Sorsa (Turku University of Applied Sciences, Finland)
Tom Barton (California Western School of Law, USA)
Gerlinde Berger-Walliser (ICN Business School, France)
Vikki Rogers (Pace University Law School, USA)
 
The IACCM Research Highlights 
IACCM continued to undertake a wealth of research that the contracts community has traditionally lacked. The highlights that I select for 2009 are:
The Most Admired Companies For Negotiation was a study that built on a similar survey in 2008, focused on post-award contract management. The importance of both of these studies was not so much about winners and losers, but more about the fact that it was the first ever effort to define what constitutes excellence in contract management and negotiation and to describe the steps that must be taken to achieve it.
The 2009 Most Frequently Negotiated Terms survey was in fact the eighth annual report on this topic, but for the first time it sought to establish the negotiations agenda for the future. Our community acknowledged that today’s focus for contract negotiations fails to optimize business value and the report findings offer a vision for how we must change.
The Trends In Contract Management Software study confirmed the disappointing level of uptake by the contract community, but highlighted the growing maturity of the providers as they graduate from offering instruments of control and compliance to tools that provide business and market intelligence. This is the trend that facilitates the transition of contracting from a transactional to a strategic discipline.
 
 

 


 

 

IACCM CONFERENCES

 
IACCM's 2010 conferences focus on contracting as a core competence. We bring you the results of our studies on the top performing companies - and the chance to hear from their leaders and get the inside story. Plan to join us as we map the future for all those who care about contract and commercial management.
 
 

IACCM Americas – Orlando, Florida – March 23rd – 25th

IACCM Europe, Middle East & Africa – Edinburgh, UK – May 24th – 26th

"Contracting As A Core Competence" 

Get ready to join us for our 2010 conference series, which kicks off at the Omni Orlando Resort in March, 2010. See the agenda or register at www.iaccm.com/americas .

Contracting has been identified as one of the three core competencies on which business organizations will depend if they are to flourish in 21st century markets. 

The spotlight is upon us …. it is time to respond.
 
IACCM once again brings you the thought-leaders, the case studies and the insights you need to ensure you are on-track to achieve contracting excellence. Among our confirmed speakers for the IACCM Americas event are:
 
  • Dave Connor, VP Procurement & Supply Chain, BP
  • Craig Silliman, Senior Vice President & General Counsel, Verizon Business & Verizon Telecom
  • Sylvia Steinhauser, VP & Deputy General Counsel, Enterprise Business, Hewlett-Packard
  • Vince Taylor, Managing Director, Commercial & Contract Management, Accenture
  • Lamar Chesney, EVP & CPO, Suntrust Banks
  • M C McNeill, Vice-President, IBM Global Services
  • Craig Guarente, VP Contract Management, Oracle Corporation
  • Kenneth Riley, General Manager, Supply Chain Management, Chevron Global Upstream Oil & Gas
  • Daniel Mahlebashian, Chief Contracting Officer, General Motors
  • Jean Kinney, Associate Director, Purchases, Procter & Gamble
  • Nancy Nelson, Global Contracts Director, CSC
  • Tim McCarthy, Worldwide Director, Contracts & Pricing, Rockwell Automation
  • Stacie LeGrow, Corporate Counsel, Cisco
  • Regina Jones, Global Client Contracts Manager, Schlumberger
  • Tim Cummins, CEO, IACCM
  • Katherine Kawamoto, Vice President, Research & Advisory Services, IACCM
  • Suzanne Watson, Vice President, Consulting Services, IACCM
  • IACCM: Where Thought Leadership & Practicality Co-Incide
 
 

 


 

 

Trends For 2010

 
In conversations with top practitioners and executives, the number one issue for 2010 is the subject of ‘commercial agility’ or ‘flexibility’. The standardizations and enterprise software implementations of the 1990s introduced new levels of efficiency, but far too much rigidity. The elimination of people and their replacement with automation in many cases reduced the ability to adjust to changing market conditions, and was accompanied by a stereotyped view of risk management (in particular the belief that risk could be managed primarily by allocating it to others).  The recent recession has emphasized the need for change.
 
 
PART II: Trends for 2010
 

Commercial Agility

In conversations with top practitioners and executives, the number one issue for 2010 is the subject of ‘commercial agility’ or ‘flexibility’. The standardizations and enterprise software implementations of the 1990s introduced new levels of efficiency, but far too much rigidity. The elimination of people and their replacement with automation in many cases reduced the ability to adjust to changing market conditions, and was accompanied by a stereotyped view of risk management (in particular the belief that risk could be managed primarily by allocating it to others).  The recent recession has emphasized the need for change.

“We are now often facing an ‘asymmetric’ threat at the front line and therefore our products and services need to be more adaptive and agile. This flows down into the business models and commercial / contractual constructs required throughout the supply chain. There are significant opportunities for those organizations that can adapt quickly and drive the market; commercial / contracts staff have a real opportunity to play a strong role in this”, wrote one executive from the aerospace and security industry. His comments were echoed by others, including Professor Rob Handfield, who said: “I think one of the key issues we saw in the recent market intelligence study (conducted with IACCM) was the importance of understanding market conditions and having the ability to scan, listen and understand changes in the market – and form appropriate responses and actions in the business. Structuring contracts around those listening mechanisms and creating flexibility is a key component of companies that are truly best in class ....”.

On the buy-side, Procurement executives emphasized the need for more efficient ways to adjust price and cost models: “We are building into contracts mechanisms to manage inflation and deflation that should maintain supplier margins. We expect those margins to be used to develop people and technology that will benefit our operations”, commented one Chief Procurement Officer from the oil and gas industry. Another, from the technology sector, confirmed this position: “A major issue facing our contract professionals is how to deal with market volatility and / or inflation in 2010 – 12. The question we must be asking ourselves is how we are protecting our organizations against the market risks associated with economic uncertainty. The creative use of forward contracting or contract price adjustment clauses will be needed to ensure that the parties are managing commercial and market risks appropriately. If the contract represents an allocation of risks between the parties, we must ensure our personnel have the ability to assess the risks and allocate them in complex contracts”.

To enable this agility, among the changes in contracts and terms and conditions that we expect to see during 2010 are: 

·         A strong emphasis on new contract models for ‘complex’ projects and relationships, in particular the need for contracts and the contracting process to play a stronger role in governance and the foundation for trust. This will include a drive for greater openness and transparency throughout the contract term; improved understanding and discussion of risks and their allocation and management; and the development of KPIs and measurements that support proactive change and amendment. IACCM’s joint working group with the International Centre for Complex Project Management (ICCPM) will offer a major contribution in this area.

·         We will see growing sophistication in termination and change management provisions, including the development of ‘buy-out’ clauses. This will also drive improved assessment and transparency of the cost associated with term and condition and risk options and different deal structures (drawing on the work of Oliver Williamson, mentioned previously).

·         The drive for industry standard contracts and contracting principles will increase, addressing the illogicality and expense of one-sided and confrontational buy-side / sell-side contract forms. The work of IACCM in the technology sector will provide leadership in these ‘principle based’ models, which will not seek to eliminate negotiation, but will encourage discussion away from a balanced standard, rather than efforts to reconcile today’s polar opposite positions. Similar progress will be made in areas such as consumer contracting, to address the inequality of current international practices.

·         Approaches to contract pricing will change and become more adaptive. As a result, leading Procurement groups will be able to shift evaluation from cost to value over time.

Outsourcing
 

This drive for agility and flexibility will lead many to rethink their sourcing (and outsourcing) strategies. It will cause a reassessment of many of the large ‘prime contractor’ agreements because, as buyers develop their contract and relationship management capabilities, they will perceive advantages in having direct relationships with sub-contractors, both from the perspective of cost and flexibility. 

Contract duration will be another major area of review. Many long-term contracts have failed to deliver innovation and the argument that outsourcing would increase flexibility was felt by many – during this recession – to be a myth. This is driving increased demand for either shorter contracts, or contracts with specific break provisions based on milestone reviews. While such changes are possible, they will change the economics of many deals and will result either in scaled-back supplier investment or in higher front-end charges. 

Increased awareness of costs and the value of relationship flexibility will also lead to more sophisticated judgment of the on-shore / near-shore / off-shore outsourcing models. Relationship management complexity and cost will become a more influential factor in supplier selection, reducing the attraction of some remote or relatively immature overseas markets.
The trend towards outsourcing contract management, procurement and legal services will gather pace, as internal resources are deployed on the areas that are truly more strategic. Common supply categories and replicable areas of contract development and post-award obligation and deliverable management will be among the areas to be outsourced.

Within the industry itself, former IACCM Chairman Bill Huber (now an executive at TPI) suggests two major trends. 

1.       An increased level of sale of offshore captives to Indian-based outsourcers, reflecting both a desire to monetize value and an increasing recognition that the business case for captive vs. outsourcing may have been overstated. 

2.       Increased acquisition of smaller Western outsource providers by Indian firms, reflecting a desire to increase vertical penetration in certain industries and also to have a more robust on-shore delivery component for outsourcing, possibly as a hedge against ‘protectionism’ (a trend also highlighted by Doug Hudgeon, Head of Client Engagement and P2P at Macquarie Group).

Innovation

“Innovation is not about wearing a white coat,” wrote John Kay in the Financial Times (December 16th). He is not the first to comment that today’s sources of competitive edge are increasingly based on business models and commercial terms, rather than technical innovation. As Warren Buffett has observed, it is frequently the imitators who gain the greatest benefit from innovation, because they make it marketable. Kay concludes his article with the comment: “Innovative success is based on matching capabilities to market.”

In a services and outcome based world, it is the commitments we make – and our ability to reliably perform them – that represent innovation and competitive advantage. In the words of Tim Cowen, former General Counsel at BT Global Services and IACCM Chairman: “In IACCM, we use the language of ‘Commitment Management’ to highlight the fact that relationships matter and that what is taking place is commitments, ultimately in the form of contracts between organizations and in the form of personal commitments that need managing jointly. The three stages of commitment management are making a commitment (defining the demand and response); meeting a commitment (the deliverables and mechanisms); and managing a commitment (overseeing and adjusting what is delivered)”. 

The contract embodies those commitments; the contracting process should assist in identifying the needs of the market and quality assessing the capabilities to deliver against them. 

Therefore a key trend that we will see in 2010 is a growing recognition that contracting is a source of innovation, both in what is offered to the market and what is sought from the supply base. This demands an increased role for market intelligence; contracts professionals (buy-side, sell-side and legal) will be expected to understand the significance and economic value of contract terms and structures.

Escaping the straitjacket of traditional legal systems

At the corporate level, the trend towards alternative dispute resolution will continue, including increased mechanisms to anticipate and resolve potential sources of dispute through proactive management of contracts and relationships. A key goal of best practice contracting will be to avoid the likelihood of dispute through improved transparency and reporting. This will shift the focus of many terms, with greater incentives to share information and collaborate in issue resolution, rather than apportion blame.

This trend will be mirrored at a global level as governments seek to address the impacts of global trade and its implications to governance and equity. For example, we will see the emergence of more international bodies to oversee regulation or simplify dispute resolution. For world trade to flourish, consumer trust, government control and corporate risk management demand clear and enforceable codes of practice and instruments of enforcement. These will start to emerge in 2010, especially in areas such as e-commerce.

Increased integration of contract management and relationship management

Professor Leslie Willcocks sees ‘contract management’ maturing into ‘relationship management’ and certainly it is easy to see how these activities will increasingly combine on the buy-side of business operations. However, it is less clear whether this role will fall to Procurement, or whether there will be alternative organizational models. During 2010, specialist groups will increasingly emerge in areas of high complexity and strategic importance in order to improve management of risk and market change. In particular, areas such as outsourcing, managed services and IT procurement will frequently develop their own integrated contract and relationship management capabilities, unless Procurement rapidly responds to the need for such skills.

Mark Pedlingham, from the UK’s Office of Government Commerce, summarizes the challenge: “Procurement needs to take maximum advantage from its relationship with the suppliers it engages to deliver complex projects. (This will happen) in three stages – pre-competition, the contracting phase and contract management, where continuous adjustment aimed at delivering true value should be the focus. For me, procurement should be seen as an extension of risk management, but through the engagement of capability within the market”.

On the sell-side, transition will prove more complex due to the embedded role of relationship management within Sales. However, the pressure for greater commercial and contracting capability – and a more responsive process – will cause many to explore new approaches. Proactive commercial / contracts groups will move towards the strategic high ground of enabling organizational capability and responsiveness to market and customer needs. Those that remain transactional in their approach will increasingly find they are squeezed between a growing role for account managers (transactional contracting) and business development (commercial strategies).

Buy-side or sell-side, there is general agreement that improvements have a dependency: “The challenge is to provide sound practical guidance on how this is achieved and create the momentum and skills necessary to take advantage of it”. IACCM’s work in this area will be the development of published best practice guides and the introduction of advanced training options, both through the Association and through a range of academic partners - universities and business schools offering higher level qualifications for a contracting / commercial management career path.

Relationship Modeling

Organizations will show greater sophistication in evaluating relationship value and segmentation. This will include a need to rethink price-based decision making and develop improved approaches to costing risk and evaluating relationship cost and value. While the pressure for change may focus on complex contracts and ‘strategic relationships’, organizations will recognize that sustainable progress requires a more structured approach to market management through a portfolio of contract offerings.

Contracting and relationship processes will also be remodeled to reflect this contracts portfolio, enabling better structured review and approval, negotiation planning and post-award resource management. Segmentation will support improved definition and use of contract management software tools, ensuring that the applications are aligned with the relationship type and goals.

In conjunction with this modeling, more thought will be given to the types of measurement and KPIs that are appropriate to different relationship types. By greater understanding of goals, and application of the appropriate relationship model, negotiations will become more focused and take less time. Use of the right metrics will assist contract management and ensure improved outcomes.

Jon Hughes of Vantage Partners sums up the opportunity this: “Research we undertook with IACCM and others was noteworthy in highlighting the huge amount of contract value – nearly half – that buyers and sellers report on average leaks away or goes unrealized ...... To approach negotiation and contract management with a goal of value realized surely needs to become a greater priority for the community. The research also showed a meaningful statistical correlation between a more collaborative approach ... The connection between collaborative, high-integrity business relationships (at the individual and organizational level) and contract and commitment management will be an area of increasing importance”.

Automation

Increased automation will start to be more actively promoted by the contracts and commercial community, both as a source of greater efficiency and to enable the higher value tasks outlined above. Today’s advanced contract management solutions increasingly offer data collection and analysis that lifts contracting from a transactional and operational activity into a strategic role, managing and advocating change at both a deal-based and organizational level.

While some leaders will recognize this value and its role in establishing competitive advantage, many will be driven primarily by tactical needs. In the words of Ashif Mawji, CEO at Upside Software: “Legal has taken a commanding position in actively seeking automation for contract lifecycle management and is genuinely interested in implementing efficiencies. Companies want to implement in an expedient manner and start reaping rewards sooner – the pressures of increased workloads with reduced staff are taking a toll”. Ashif also observes that more deployments are phased, starting with simpler forms of agreement and progressing to areas where there is more complexity.

Summary: The Challenge For Our Community

2010 is the year when commercial and contract professionals must step up – or risk being pushed aside. This paper explains the pressures for an increased role, the demands for commercial and contract strategies that align with market needs and improve the management of business risk. Contracting must become a proactive discipline, providing positive differentiation, rather than constraining the business and its trading relationships.

The challenge is real and immediate. It also offers a period of unparalleled opportunity for those who wish to make a real and visible difference.

I will conclude with the comments of Professor Rene Henschel, from Aarhus School of Business in Denmark:

“I agree that the Williamson Nobel prize and the recent Willcocks/Cohen research will put more focus on the interaction between law & economics, between contracts and management and economic theory. I also agree with the other view on flexibility, the outsourcing trends and so on, BUT: The big question is: how do we actually create lean, flexible, innovative, fast-moving contract management organizations that balance between the need for control, compliance and accountability, and the need for adaptability, agility and change-management? This is a management innovation question, and involves not only contracts but also relationship-building. There is a very interesting gap between "hard" and "soft" contracting - how much is left to the contract (e.g. control/information of the known), and how much is left for other factors, such as relationship building and trust (e.g. how do we manage the unknown)? That depends to a large degree on the type of contract (Sale, Service, Project), and the relationship (new/old customer or supplier? Domestic/Export contract?). Here, more research has to be done, so we can improve the way we select the right technique and contract for the particular relationship.

This also means choosing the right way for solving conflicts, for example mediation, and there is much more to be done in order to avoid conflicts and costs.

Contract managers have (or have access to) a lot of valuable information and this they must start to share with other stakeholders. For example, on outsourcing decisions (what is the cost/risk of this type of offshore supplier?) or on supply chain management (which kind of contract clauses will best motivate suppliers).

Consequently, one of the key trends must be that the top decision levels in a company are better aware of the great importance contract management has in modern business life. And that contract management truly is a cross-functional and interdisciplinary applied science”.
 
 

 


 

 
 
 
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