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Terms & Negotiation

Published: 15 Jun 2012 Average Rating: 2.5 / 5 Print
 
This article appeared in Contracting Excellence magazine on 15 Jun 2012 view edition
 

'There is such a lot of wasted time and energy on trying to agree terms and conditions between the parties. And a lot of the time, common sense and judgment don't come into it. We need a total cost approach that links effort with risk likelihood.' (Colin Davies, European Head of Procurement, Sony)

Terms and negotiation must inspire “confidence in the parties that they believe they are getting what they are contracting for in terms of the goals as well as the process, the ethics, the speed and efficiency with which it is done and in which contracts are administered.” (KB Iyappa, GMR Group)

The IACCM Conclusion

Efficiency, speed, simplification. These are seen as critical ingredients of the future process and in order to achieve them, negotiations must become far more focused on the things that really matter. In order to fulfill a more strategic role in the business, there is broad consensus that greater segmentation of contract and relationship types will lead to an improved catalog of approved terms, a growth of commonly accepted standards and (in consequence) a shift in the focus on negotiations. In part, this shift will be to ensure the time and effort of negotiators is more closely aligned with the delivery of value. Also, it will therefore concentrate on more complex situations and terms that assist in delivering successful outcomes. This suggests that the desire by negotiators to spend time on negotiating topics such as scope and goals, change management terms, performance criteria and reporting will steadily be realized.

This means that, over the next 10 years, there will be growing consensus on standards at both an industry level and between major trading partners. Some of these standards will be driven by the growth of regulation – for example, the need for financial services, food industry, oil and gas, pharmaceutical companies to demonstrate effective control over their supply chain can only be achieved through common principles and methods that will steadily become embedded in industry practices and audited compliance, rather than by individually established terms and conditions.

Efficiency will also be achieved by establishing and maintaining terms and conditions as a much more integrated element of the product or service development and management process. Market research and needs analysis will include improved understanding of the commercial terms that are needed to meet specific segment needs. 

Finally, contract terms must stop undermining business purpose. This story from one of our interviewees illustrates the dilemma perfectly.  "How can you ask a supplier to invest in people, talent and innovative thinking, to put money into the development of your relationship, and then insert an escape clause, where we can leave the relationship in 30 days when we feel like it?”

Many of those interviewed recognize the need for greater emphasis on the economic and behavioral impacts of terms and conditions. Today, the balance has tilted too far towards legally-driven terms that seek to allocate fault and consequence when things go wrong. Much of the boilerplate could be handled through standardized procedures and norms that would shift the substantive terms and conditions to a focus on the definition of value and how it will be achieved, plus the performance management methods and criteria that will be used to drive success (or identify and resolve problems). Terms and conditions will therefore be more thoughtful and creative in areas such as the management of change; on-going communications; joint working; benchmarking; and problem-solving forums and authorities.

 
 
 

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