Executive Concerns: Change, Commitment, Compliance
Published: 13 Feb 2014
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Managing growth in an environment of uncertainty is the overall concern that emerges from a recent survey of business executives. They fear regulation, the potential for market volatility, the possibility of disruptive innovation and the inability of their organization to adapt sufficiently fast.
The top risks all have impact upon contracting and commercial practices. For example, the fear of regulatory changes and increased regulatory scrutiny clearly drives the need to ensure oversight of commitments, market practices and supplier integrity. On the other hand, risks such as economic uncertainty restricting growth, difficulty acquiring new customers and volatility in global financial markets call for new or adaptive commercial offerings and contract terms that enhance competitiveness and improve controls. Specific terms and conditions are also likely to face renewed attention – for example, those related to data security / privacy and managing exposure to cyber threats.
Overall, this should represent a busy time for anyone working on contract strategy and policy, with the evident need to balance creativity and control. Businesses need new commercial models and offerings in order to compete, yet at the same time must improve oversight of compliance and enable greater agility in their contract relationships. Approaches to financing, to currency hedging, to systems for contract and performance management appear critical in the environment executives describe. At the same time, research into the contract terms that will support winning in the market, enabling new business models, may prove critical. Regulatory and reputational concerns are likely to translate into growing interest in the development of industry standard terms and practices, to raise confidence in levels of compliance and as a defense against charges of failure.
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• Gemserv
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2019-07-03 15:11:45
This is definitely something that should have greater consideration in my organisation, I have been quite vocal in pushing it. I have worked in teams where particular members have found the lack of bounds extremely stressful as they feel they are crowded out or put upon by the more vocal members, who are equally frustrated it takes so long to get things done. Clarity in defining the roles and responsibilities can often be an enabler.
• Babcock International Group
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2019-08-18 12:37:30
Agreed, this is a great article and really gets you thinking about the behaviours instilled within your own immediate team. If we cannot get the behaviours and roles clearly specified for our own team members first we are setting ourselves up to fail in the wider team and externally.
• Experian
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2019-02-03 22:03:09
Agree - this was quite an insightful article. I've always believed that it should work in reverse - that you should set the objective and then leave it up to individuals to work out how to get there, which is what the article says except for specifying that their roles need to be clear. I believed that if roles were less clearly defined then it gave people scope to expand their remit, however I can see why this can cause confusion.
Replies: 3
• IACCM
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2018-02-27 14:17:31
You are correct, but don't you think that is implied under the 'ultimate objective'? Perhaps you have only experienced part of the statement so far.
Replies: 1
• Contract Manager Canada Inc.
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2017-02-04 02:36:22
If the project is delayed by the Employer... first make sure that there were no delay causes by the Contractor on the previous agreed milestones, for you to be fully eligible for a compensation. Now the tricky part to kick in, is the delay resulting to only warranty extension, which means that all construction, installation and pre-commissioning done? Just ensure that you've all signed-off documents that it's pre-commissioned. if so, your service team will provide an additional cost for extra-warranty coverage and you can lever it as a scope-creep. This is not an issue, if all of your works are completed and no more to come back to do additional works, then you need to add remob to commissioning cost plus the extended warranty cost and get a CO prior to agreement of extension. Don't forget to have your insurance company informed on this extension, as they were notified of previous warranty commitment, not the new one. Hope this serves.
• Seiersen Enterprises
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2016-12-03 22:23:43
It strikes me that the actual costs of extending the warrantee might be considered.
These may be nil if the delay in the project delays the in service date, and thus the risk of fault.
The onus might be put on the supplier to prove the materiality of additional warrantee costs whatever they might be.
• Capgemini India
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2016-12-05 04:44:19
As warranty effort is provisioned to fix bugs of contractor's defects, since the delay is caused by the Employer, the Contractor is entitiled to claim additional cost. Not only is this instance 'due to failure of the employer (customer)', which is not due to cause by the contractor, there could also be a delay in the service start date, which means the plans for service could be impacted. Therefore, I believe the additional cost is justified.
• Whirlpool
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2016-12-14 13:17:49
Our service department has actually been able to provide a number for us by unit of what an additional year of warranty costs us. Do you know how much the first year costs you? You could always just submit that as an estimate for year two.
Replies: 4
• Ternium Brasil
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2017-01-15 04:37:47
Hi Zarah,
It´s a pleasure to share the information with you and the colleagues of the forum.
So, in Brazil many companies has been implanting CM in their structures but still have many doubts about this area. Sometimes managers asking me about the difference about contract management and project management.
Nowaday I work for a steel company in Brazil and has been implanting with a team a contract management area to help the company to reach their strategic results.
Regards,
Gustavo Procópio
Contract Engineer
Rio de Janeiro - Brazil
• New Zealand Defence Industry Association (NZDIA)
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2016-06-21 22:50:31
Public sector all over the globe. IT and Infrastructure. When mining and Oil and gas pick up would expect more there.
In Australia there is a lot of interest in CM to assist with commercial excellence endeavours.
Replies: 2
• MacTaggart Scott
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2016-04-25 05:15:31
With the limited text it is difficult to provide a concise response, however based on your text my response would be:
Defined spend is customer focus based on financial spend limitation over the duration.
Work Order will define the deliverable and as such recognise when a deliverable criteria is complete / met and will trigger payment.
Change request will recognise change within the Work Order and will be important as to reciognise completion and hence trigger further payments.
Control and visibility of spend and growth within work orders will be important to the customer and the supplier.
• New Zealand Defence Industry Association (NZDIA)
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2015-03-27 02:00:28
A bit of a guess but it may be due to the accounting package they use which requires the raising of specific orders to trigger the right to get payment.
Some of the big packages are dogmatic in their requirements and which are hard to get around.
• VPM Consulting Services - BCHydro
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2017-09-07 05:55:06
I am not familiar with the exact terms of your contract. But a work order and change request are not the same thing, one does not replace the other. The change request comes from your contractor and specifies what is requested as a change, this can be approved or not after evaluation. The work order is an order to start work that normally contains, scope, work methods, safety requirements, etc, but it is not a commercial document, it does not have commercial value, so if the contract will be amended you still need a change request and then a change order to seal the deal. Hope it helps,
• Hyland Software, Inc.
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2015-03-31 07:35:26
We enter into a SOW with our Customers that covers the basic terms and conditions and address the scope and pricing in the Work Order. This provides us the protection needed while giving the professional services department the ability to manage projects without involvement from contracts/legal.
• Australian Taxation Office
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2015-03-31 19:13:19
I am also guessing to fill some of the gaps in the information you've provided, but I suspect you have a services agreement of some sort. If you have a contract to complete a specific, once-off project, then you can pretty much define everything to be done in the SoW. With a services agreement on the other hand, you tend to define the services you want and agree a price, but you can't necessarily define in advance how many of those services you want or where or when you want them. We also have a spend over the whole term shown in our contracts - but it is only our 'best guess' based on what we know today and can change at any time.
For example, WAN services are listed in one of our contracts, with various different bandwidths and performance levels, and agreed pricing. At any time we can ask the provider to decommission a site (so that WAN link drops out of the equation and the total price) or connect a new building (in which case they start billing us for that new service, at the price already agreed in advance). We use something like a work order to do that (it's actually a non-standard service request in our case). So, the contract defines all the services we are buying or might want to buy in the future, and we use work orders to say "OK, now we want you to actually do that"...
• Phillips 66
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2015-04-14 08:54:33
We typcially describe everything in the Scope (SOW) and that document is the call off from the main master contract. But having said that we use SAP so a "paper" Sow has to be input into SAP in the form of a Service or Work Order for the SAP payables process to be enabled. So like one of your other comments that's probably the reason.
• AVEVA
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2015-04-22 00:37:23
I would hazard a guess it could be for:
1) Paying invoices against an activity as there may be multiple work breakdown structures covered by the SOW
2) Financial approval when invoices come in. Ensuring that the contract owner is happy with the goods and/or services have met the requirements of your business
3) Allows you to track commitment and expenditure vs your budget (SOW work value)
Replies: 7
• IACCM
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2018-02-28 08:14:20
Kum - I provided a response on your other question, which seems to cover the same topic. Please review my response on your other post, and if it does not provide sufficient information, please let me know at jbergman@iaccm.com
Jim Bergman
VP - IACCM
Replies: 1
• IACCM
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2017-01-13 10:43:50
The answer to your question is that first you should look beyond the contract and explore the commercial factors that might influence a solution.
- what is the reason that the customer is delaying payment? Are they unhappy with your performance or is it perhaps due to their process; for example delay could be due to their payment cycles, or because of the need for internal sign-off by a particular individual.
- if you identify the cause, you may find an immediate remedy - eg change your invoice date to better align with the payment cycle, or work with your customer to see how approval can be streamlined.
- if there is no apparent reason, do you have leverage with the customer - for example the value of your supply - which could be used to encourage greater discipline? Can you explain to them the impact that delayed payment is having on your business and the possible flow through of consequences on the quality of supply.
- as a last resort, the remedies may include a charge for late payment, a threat to raise prices or a formal notice of breach and requirement for advance payment. But these really are last resort solutions because they run the risk of severely damaging your relationship.
• BCA - BETTENCOURT DA CAMARA - ADVOGADOS
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2017-01-18 11:09:08
As Tim said, first of all you have to ask your customer what is the reason for delaying payment. In case your customer alleges financial or liquidity problem, you can make an amicable settlement plan by making the customer sign a payment plan to settle the debt in monthly installments. In this case, i would advise to ask for an immediate 1st payment that can cover your costs of production.
In case your customer alleges quality problem, you should check the contract terms to see if there is any clause about the term to raise a complain about quality. You should also ask for proves, for example photos. never accept a quality complaint without proves.
In case of quantity complaint, you should check if there is any clause in the sales contract about allowing variation of quantity. many contracts have this type of clause, as for example allowing 5% more or less quantity. In any case, I would advise to always try the amicable means before threatening with stronger measures or legal actions.
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