Agility, contracts and value: time for new thinking
Published: 23 Sep 2019
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Author: Tim Cummins
Agility is defined as 'the ability to move quickly and easily'. It is an attribute that today's business considers highly desirable, yet typically struggles to achieve. Research shows this is particularly true for the contracting process and the management of external relationships.
Agility in the context of contracts
'Agile contracts' are typically thought of simply as a form of agreement that supports the parties in undertaking agile performance. But of course, preparing an agreement is just one small component of the overall transaction or relationship and enabling agility through a set of contract terms is very different from actually being agile.
There is little question that most people would like their trading relationships to be agile. Quick and easy to identify the right supplier or customer; quick and easy to reach agreement on the terms; quick and easy to undertake delivery; quick and easy to make changes or secure improvements. But as IACCM's 2019 Benchmarking Study shows, 'quick and easy' is not a description that can often be applied to the overall contracting process. While the simplest transactions (such as buying off Amazon) may be 'agile', as soon as something enters the more formal sales and procurement process it becomes subject to delay and complications. And even when one aspect of that process has been made 'agile' (for example a catalog buy), it doesn't guarantee that other aspects of the downstream process have the same characteristics.
Tackling a mismatch
One major finding by IACCM – and now the subject of further in-depth research – is the fact that the contract terms and the governance models used to support each trading relationship are frequently not 'fit for purpose'. There is, quite simply, a mismatch between what the parties want to achieve and the contract and contract management model that they deploy to achieve it.
Ironically, one major reason for this turns out to be that efforts to be 'agile' in entering into the contract result in overall rigidity and loss of flexibility in its performance. Specifically, both buyers and providers tend to be wedded to the use of standardized contract templates that are frequently designed to limit agility and which are themselves not readily adjusted to reflect specific aspects of the required relationship.
Becoming agile
Agility is itself often seen as complex. IACCM's work with a group of major corporations (its Ressarch Forum members) is proving this not to be the case. What is perhaps the most challenging aspect is finding people with the mental agility to recognise that they really can make things better!
At a forthcoming series of mini-conferences, starting this week in India, IACCM will be inspiring its members with the insights they need to drive new conversations and discover new levels of agility and value in their trading relationships. Key to this is starting to think and act holistically in managing the contracting process.
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• Ministry of Defence
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2019-10-22 09:16:51
I think that the consideration was already made via the original agreement. The variation is a change to the original. So, in my opinion consideration has already been made. This relates to my experience in English Law only.
• Legal and Commercial Training Limited
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2019-10-25 06:42:02
In some jurisdictions (such as England and Wales) a contract requires 'consideration' (in addition to offer, acceptance and intention).
A variation of a contract is itself a contract - that is, an agreement to vary the original contract. Therefore, a variation will require consideration.
However, it may not be essential to expressly refer to 'consideration'. Consideration is an exchange of promises of value. When parties agree to vary a contract, the consideration can be found with both parties promising to carry on performing the contract as varied.
Having said that, if there is ever any doubt whatsoever as to the presence of consideration, it is always preferable to state clearly what the consideration is. Or (in English law) you could execute the document as a deed.
• NA
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2019-10-30 20:41:39
In the wording of your example, not only the price to be paid for the variation is set but also the terms and conditions or description of the variation is set: 'in accordance with the arrangements set out in this Variation Agreement'. In this case, I understand it as an option to choose: either the original contract, either the modified terms and conditions which works with a different price.
You may offer a variation without any additional cost any time the change to consider does not impact the resources, time or cost of the considered project; or whenever the parties have planned a variation mechanism or tolerance and already included it in the initial price and defined the scope of such authorized variation.
• Tata Consultancy Services (TCS)
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2019-11-01 05:14:17
Thanks a lot Graham,Michael and Anne for sharing your inputs on this topic.
Best Regards,
Anirban
Replies: 4
• Legal and Commercial Training Limited
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2019-10-25 07:13:07
NOVATION. A contact is between A and B. The contract is to be notated to C. This will require a try-partite agreement so that A and B and C will all have to agree. The effect of the novation is that A, B and C will agree that in future the contract will be effective as between B and C (with A no longer a party). A novation will, therefore, transfer to C the benefit and the burden of the contract
ASSIGNMENT. A contract is between A and B. A intends to assign the contract to C. The is a bi-partite agreement between A and B. A will assign the contract to C.
However, A can only assign the 'benefit' of the contract and not the 'burden'.
For example, if, under the contract, A is to to provide services to B and B is to provide benefits to A, the effect of an assignment will be as follows: B will be required post-assignment to provide the benefits to C. However, A will still be contractually obliged to ensure that the services will be provided to B. So if C does not provide those services to B, B will be able to take action against A.
Therefore, A will have assigned the benefit but will remain liable for the burden. Therefore, when A assigns the benefit to C, A will require C to give A an indemnity for any non-performance by C.
• Tata Consultancy Services (TCS)
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2019-11-01 05:00:51
Thanks a lot Michael for such a clear explanation.
Replies: 2
• Ministry of Defence
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2019-10-04 08:36:12
Try any of these?
Institute of Business Ethics www.ibe.org.uk/
International Labour Organization on child labour www.ilo.org/ipec/lang-en/index.htm
Ethical Trading Initiative www.ethicaltrade.org/
UN initiative for businesses who want to align their operations with ethical practices www.unglobalcompact.org/
Replies: 1
• IACCM
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2019-09-06 23:23:45
Terms are basically things that we agree to do or not to do. For example, a Tenant agrees to pay money for rent, while the Landlord agrees to let the Tenant occupy the property in return. Or a software company will let you use their software for a predetermined amount of time.
Conditions are items that must be satisfied before the transaction becomes binding upon the seller and the buyer. Or after signing/award, the conditions can be items for dissolution of the agreement.
For example, some buyers insert a condition for due diligence that allows the buyer to verify all important details before committing to purchase.
Or if you fail to deliver on or stick to what was agreed, the conditions can spell out how the contract will be terminated.
•
2019-09-10 13:03:51
Thank you, Mark for explaining it with examples.
• Legal and Commercial Training Limited
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2019-10-25 07:28:18
The words "Terms and Conditions" are likely to mean nothing more than 'the provisions of the contract'.
However, if the word "condition" is used in the contract, then it could mean that the particular provision is a 'condition' (in the legally technical sense) in that the term is fundamental to the contract. If such a 'condition' is breached, then the innocent party may terminate the contract. A term of a contract may be a 'warranty'. This is a less important term, breach of which will enable the innocent party to claim damages.
The aim that we should be seeking to obtain with contracts is to be as clear as possible and not to rely on a court deciding that you have used 'condition' or 'warranty' in a technical sense.
For example, if the date of delivery is vitally important, you could state that it is a condition but it is better to state that time of delivery is "of the essence". This phrase will mean that the term is indeed a 'condition' enabling the innocent party to walk away and claim damages and obtain the goods elsewhere. If you are agreeing to deliver the goods, you should state the opposite, namely that time of delivery is not of the essence. If you do not and if you are one day late, the other side can walk away. Or you could state that time of delivery is an estimate and that you will use all reasonable endeavours to deliver the goods by that date.
The above is the position in English law.
• Legal and Commercial Training Limited
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2019-10-25 07:33:08
I would add that Mark is not incorrect in his description of a condition. He is referring to yet another meaning given to 'condition'. Mark is describing a 'condition precedent' which is, as he states, a condition that has to be satisfied prior to the rest of the contract becoming effective. To add some complication, there is also a 'condition subsequent'. This means that the contract is enforceable but will cease to be so if a condition occurs.
Rather than rely on the difference meanings, we should remember that a court will interpret a contract by asking itself what the parties meant when they used the words in the contract. A court will strive to give those words their usual meaning. So, rather than rely on a suspected legal meaning of a word, you could use clear and usual language to state what the deal is and what the contract means.
Replies: 4
• IACCM
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2019-08-15 21:25:58
Hi Pippa. I look forward to seeing what our members can provide to you. When you get to negotiating the agreement, please have a look in the Resource Library / Recent Research for 'contracting as-a-service'. This IACCM research indicates what is typically standard (and non- negotiable) and what can vary in different situations.
• sussex university
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2019-08-28 09:35:17
Thank you Bruce!
Replies: 2
• ATCO Electric
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2019-08-06 16:55:45
We have moved some of our Procurement & Construction projects from progress based payment to milestone based payments. The major reason was to motivate contractors to expedite milestone achievement, and get paid faster. However, we found that most of the time delay had come from owner, consultant, designer or suppliers (not under contractor). In those cases, contractor resisted to get paid nothing, for not their mistake. We had to amend few contracts to move back to progress payments, or we had to breakdown milestones into smaller units. For few projects, it went smooth and milestone payment were successful. So you may have to see what you can offer and what are your limitations, before introducing this change. A survey feedback from your routine contractors can also be helpful in decision making.
Replies: 1
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