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Defining the Legal Role in Contract Management

Published: 15 Feb 2013 Average Rating: 5 / 5 Print
 
This article appeared in Contracting Excellence magazine on 15 Feb 2013 view edition
 

A future edition of Contracting Excellence will focus on defining and describing the role of a contract or commercial manager - a topic that remains of strong interest.

In anticipation of that edition, this month we focus on some of the trends, ideas and questions that are influencing the contracts and commercial role. For example, what is the legal role in contract management? What qualifications should a contract manager have? How might we identify someone with the skills needed to flourish in this role? And is it a good job to have - does it have a future?

By Tim Cummins, CEO, IACCM

A future edition of Contracting Excellence will focus on defining and describing the role of a contract or commercial manager – a topic that remains of strong interest.

In anticipation of that edition, this month we focus on some of the trends, ideas and questions that are influencing the contracts and commercial role. For example, what is the legal role in contract management? What qualifications should a contract manager have? How might we identify someone with the skills needed to flourish in this role? And is it a good job to have – does it have a future?

IACCM's blog, Commitment Matters, has featured numerous articles that dive into these questions. This month we feature a few recent articles that offer readers some answers and perspectives into what the future may hold.  For anyone interested, you can read much more on a wide array of contracts, commercial, legal and procurement issues at http://contract-matters.com/

Career Choice: Contract Manager or Lawyer?
Posted November 21, 2012:  Category: Legal & Regulatory

A quick look at the Appointments pages, or a glance at salary surveys, would seem to provide a rapid answer to this question. Being a practicing lawyer is clearly a far better career choice than contract or commercial management. Right?

Not according to two senior in-house counsel that I interviewed yesterday. Both come from large international corporations that employ several hundred legal and contract management professionals. And both – one a General Counsel, the other a VP of Legal – told me that they believe the contract management role is steadily becoming far more important than that of the lawyer.

Of course, neither was suggesting that the law profession is about to go into massive retreat. And both see contract management as a future direction for many qualified lawyers. But their observation of business needs and trends has led them to conclude that Contract Management will be a critical function for 21st century business, ensuring not just the integrity of pre-award processes, but ensuring the delivery of commercial benefits.

But if you are a contract manager, don't start celebrating yet. You can't simply sit back and wait for that promotion or increased recognition. The role that is being described is broad in its skill requirements and demands a role and contribution that only a few would match today. Legal understanding is certainly part of it; but as was demonstrated in IACCM's recent 'Future of Contracting' study, the role must encompass solid financial and risk awareness, a grasp of project management disciplines, market and business intelligence as well as softer skills such as communications, analytical, problem solving and negotiation. It demands true 'solution providers' who are not focused on transactional 'fixes', but are bringing sustainable improvement to business performance and competitiveness.

Both of the organizations that I interviewed are investing heavily in building and developing these capabilities. They see an urgent need for greater engagement by the university sector, so that contract and commercial management are seen as viable career paths by the school leaver and the graduate.

With so many lawyers now entering the market, a growing number are converting to contract and commercial management roles. But in future, I believe we can expect a real choice, where individuals train to become contracts or commercial professionals, rather than falling into the role from another business discipline.

 

Who is best qualified to be a contracts professional?
Posted April 30, 2012  Category: Legal & Regulatory

A recent blog resulted in the following comment by B R Srikanth (an IACCM member from the oil and gas sector and based in the Middle East): “the more important question should be “Who is best qualified to be a Contracts Professional?” Is it someone with a law background, or Finance or technical or project management or a bit of all. “Is a Contracts Professional suitable across industries like an Accounts or Finance professional; if not, is it industry specific?”

In order to answer this question, we must address whether those in contracts and commercial management can truly be called 'professionals'. And if they can only be defined in relation to other professions, the answer is no. A hallmark of professional status is a distinct body of knowledge which includes widely used techniques to undertake the diagnosis and remediation of problems. If contract managers are simply amateur lawyers, accountants, project managers or engineers, they cannot be deemed 'a profession'. And of course, by defining the role in this way, it guarantees that it is seen as a sub-element of another functional discipline, with relatively low status and value. It also means that the role is performed inconsistently, depending on whether an individual or company sees its primary purpose as legal, financial or project-management oriented.

Of course, this is not to suggest that contract and commercial managers do not operate with professional standards – principles of ethics, integrity, a commitment to learning – but that is in no way the same as being 'a profession'. And at this time, the contracts and commercial community remains on a journey towards professionalism because, while there are several thousand who are now certified practitioners, many are not – and therefore still define themselves in terms of a quite different professional background and qualification (or indeed have no formal qualification at all).

The syllabus for contract management does indeed include elements of finance, law and project management. But it also incorporates elements of marketing, economics, business planning, quality management and business development. And it molds those fields of knowledge and understanding to create unique value propositions that support successful business outcomes. Therefore the real question should be more focused on the skills and aptitudes required for excellence in this role – and there we start to focus more on communications, analysis, negotiation, time management and a range of other personal attributes that ensure effective application of the knowledge supplied through the learning syllabus.

IACCM has defined the skill and knowledge requirements for contracts and commercial professionals and developed a body of knowledge to support their work. Through this, we are steadily observing the emergence of a profession that can define itself on the basis of its unique characteristics. It is also increasingly supported by extensive research in areas that are not addressed by other functions and professions – for example, the connection between contracts and relationship management; the impact of selected terms on behavior and trading outcomes; the effect of cultural variations on approaches to contracting.

For now, the lack of undergraduate programs in contracts and commercial management means that most will come to this role with other qualifications or background experience. In that case, they should be measured on the basis of aptitude (skills) as much as they are for knowledge. And while finance, law and project management may each be relevant, none of them is in itself enough; each is a component of the syllabus for a high-performing contracts professional.

 

Identifying Skills: A Key To Successful Recruitment
Posted October 4, 2012   Category: Legal & Regulatory

Are you by nature suspicious, incisive, critical, exacting, organized and of high standards?

According to an expert writing in Workforce, these are traits often associated with people who have strong analytical skills. These skills are widely considered to be of increasing importance. In part that is because routine jobs can be automated; and it is in part because automation itself enables more analysis since it generates so much additional data. Those in contract and commercial management are not immune from this trend. Indeed, creative professionals have always needed strong analytical skills in order to resolve problems. That need is growing and the potential we have to analyze contract content, performance, the inhibitors to good relationships, the factors that damage value delivery are all potentially there for the taking.

One of the major distinctions within our community has been between three classes of practitioner:

  • the administrator – people who simply follow the process, monitor and report, oversee compliance
  • the reviewer – people who are able to check, validate and identify problems for others to take action
  • the solution provider – people who examine the problems and identify ways they can be fixed or turned to advantage

It isn't hard to guess which of these categories is most valued. But a challenge for recruiters is how to identify the people who are either in, or have the potential to join, that class of 'solution provider'. How do you identify analytical capabilities? The article provides some useful ideas. For example, you might ask:

  • Describe a situation when you anticipated a problem. What, if anything, did you do about it?
  • Give an example of when your diagnosis of a problem proved to be correct. What approach did you take to diagnose the problem? What was the outcome?
  • Describe the most difficult work problem you've ever encountered. What made it difficult? What solution was implemented and how successful was it in solving the problem?
  • What steps do you take toward developing a solution?
  • What factors do you consider in evaluating solutions?

As a more extreme, but perhaps more revealing approach, I recall having dinner with Seth Godin some years ago. He described an interview approach where he asked candidates to tell him how many gas stations there are in the US. Of course he did not expect them to know the answer. He was simply interested in their reaction. Most professed to ignorance and would not even venture a guess. A couple were so upset that they either walked out or burst into tears. Just a few sat back and thought through an answer. It was those few who were of course of interest to him; and his next question was to understand the process they had gone through in reaching an answer.

If you want analytical skills, it probably isn't a bad way to assess them. What do you think?

 

Trusted Advisers or Compliance Officers?
Posted July 26, 2012  Category: Contract / Commercial Management

“Problems are not the byproduct of unpredictable events, but arise from a wrong turning in the culture of an industry that has come to prioritize transactions and trading over trust relationships.”

This comment comes from an analysis of what is wrong with the financial services sector by leading economist John Kay. It might have come from this blog, or the observations of many commercial practitioners, and it might also be applied to many other industries. For the point that Kay is making is that corporations have lost sight of their purpose and of social expectations.

He highlights the challenges of short-termism, of distorting incentives and of the resultant behaviors of executive management. In particular, the pressure for instant results means that business leaders no longer behave as the custodian of hard-built assets, but see themselves as risk-taking entrepreneurs – the difference being that entrepreneurs take risk with their own assets, while corporate executives do not. (And a further irony is that entrepreneurs who fail lose their assets; executives who fail receive a lump-sum pay-off).

It is this environment that is making life so hard for contract and commercial negotiators. It has driven erratic behavior at the top and destructive behavior at the bottom (in groups like Procurement, where the switch to 'transactions and trading over trust relationships' is most evident).

Kay also makes the point that regulation has switched from a system that sought to address conflicts of interest (e.g. separation of activities) to a system that seeks to regulate behavior. Yet that is incredibly hard to achieve – as the banking industry is proving. “The outcome,” he observes, “is regulation that is at once extensive and intrusive, yet ineffective and largely captured by vested interests.” He goes on to lament the growth of a 'regulation industry – an army of compliance officers, regulators, consultants and advisers with an interest in the regulation industry's expansion'.

A risk for contracts, commercial and legal staff is that they become sucked into this regulation racket and lose sight of their true role in value delivery. I agree with John Kay that the current environment cannot survive, because it is so far out of line with the public interest. We must ensure that we are active in defining and implementing the improved solution and do not find ourselves caught as the protectors of the old, inadequate risk and compliance regime. Because one thing is certain – top executives will very quickly move on to the new world and rapidly forget the people who were their friends in the former system.

 

An Opportunity For Commercial Managers & Lawyers: Understanding The Impact Of Contracts & Their Terms
Posted July 24, 2012  Category: Contract and Commercial Management

Once again, contracts and commercial judgment have proven their value and importance, this time in the successful delivery of the London Olympics 'megaproject'.

Andrew Davies leads research on innovation in infrastructure projects and systems at Imperial College Business School in the UK. He has investigated the performance of the Olympic Development Authority in delivering the required infrastructure on time and within budget – and undertaken comparison with similar projects, such as the redevelopment of Wembley Stadium (four years late and substantially over budget) and Heathrow's Terminal 5 (highly successful development but flawed implementation).

His conclusions represent valuable insights for anyone involved in the design and delivery of contracts for complex projects:

  • avoid traditional fixed-price contracts unless there is a clear and collaborative mechanism to resolve issues and changes.
  • avoid parceling out the risk to contractors. Risk must be shared by the client and the contractors, driving a collaborative approach.
  • avoid disjointed testing and acceptance. A coordinated approach that allows adequate time for full system tests must be built into the agreement.
  • avoid unrealistic budgeting. A cooperative approach with transparent data means that the relationships between the client and delivery partners are positive from the outset.

Interestingly, Dr. Davies observes that 'heavyweights in project management' are the people learning from these experiences – surely, if true, a condemnation of the commercial and legal profession who should above all have a sense of which contracts work best and what terms and practices are needed to support successful delivery. Or once again, are we focused only on the situations that go wrong and ensuring we have the right penalties in place?

 

Making the Business Case For Contract & Commercial Management

What percentage of annual revenue should a company spend on its contract management support? Is it right to think of contract and commercial managers as low-cost replacements for lawyers?

These are two of the questions that IACCM has been asked in recent months and they reflect the overall trend for executives to expect answers that relate to both the efficiency and effectiveness of their organizations.

This article summarizes the findings of research that looked at both these questions. It illustrates the wealth of data accessed by IACCM – so if you have similar questions, get in touch!

 

1. Contracts, Commercial & Legal: Are they worth investment?
Posted May 30, 2012   Category: Legal & Regulatory

For those who wonder whether contract and commercial management really make a difference, current research by IACCM is revealing interesting trends in the outsourcing and IT / telecoms services sector. These developments will be of interest to the wider contracts and legal community.

Across the industry, there has been significant growth in the resources applied to contract and commercial management. In recent times, the relationship between Legal and Commercial resources has also clarified within the provider community, though remains less clear for many buyers. This reflects the growing appreciation by executive management in supply-side organizations that the contract and its effective management are critical to business performance. Similar understanding of the need for investment on the buy-side is often lacking, with a greater readiness to assume that the supplier is responsible for performance and that existing resources will somehow be adequate. This is reflected also in the buy-side reliance on external law and advisory firms.

However, the nature of the investments made – and the way resources are deployed – show significant variations. For example:

  • Industry leaders have been developing a more coordinated approach to shared services within both Legal and Commercial / Contract Management. These include growing use of offshore resources, with some outsourcing, but a general preference for captive centers.
  • Technology and systems tools are playing a much larger role in the management process. This has moved beyond the creation of contract repositories and obligation management tools and is increasingly reflected in investments in applications such as Sharepoint and others offering advanced risk management analysis. For some, there is growing integration with relationship management software to support improved proposals and better focused negotiation.
  • The role of Legal and Commercial Management pre-award has become far better defined; smoothing the transition to post-award delivery teams remains an area for focus. On average, pre-award Commercial resources outnumber those in Legal by approximately 2:1. The post-award organizational model varies, but across the industry it outnumbers pre-award resources by a substantial margin.
  • There is growing alignment between Commercial teams and the finance and risk organizations, with the focus of negotiations reflecting this improved balance of interests.

However, in several of the poorer performing providers, contract management remains fragmented or is seen as primarily an operational resource focused on compliance, administration or risk containment. This results in higher levels of inefficiency (e.g. up to 20% more time expended on contract / commercial issues by sales and delivery teams, more frequent disputes etc.) and increased 'value leakage' (up to 30% more claims, higher proportion of under-performing contracts).

In terms of funding, the high performers are typically spending approximately 1.5% of revenue on their contracts and related legal services. This represents a significant increase over the last 5 years and also a widening gap between the companies that have been growing and those which are generally struggling to maintain market share. This divide reflects in other data assembled by IACCM relating to the ROI (return on investment) from contract and commercial capability. Overall, the data provides a compelling business case for top management – and of course, it is data such as this that we will be sharing and discussing at the IACCM regional conferences this year, as well as at our many local member meetings around the world (see https://www.iaccm.com/events/ for those which are currently scheduled).

 

2. Legal Controls, Contracts & Organization: Cutting the cost of Lawyers?
Posted January 18, 2012  Category: Legal & Regulatory

The most recent Association of Corporate Counsel survey shows that Chief Legal Officers have growing concerns about their ability to maintain business oversight and prevent potential legal exposures.

The 2011 survey confirms growing workload, but also reveals that many law departments have been able to increase hiring. The percentage feeling under pressure to cut budgets has dropped, from 74% to 54%. However, most continue to push for greater value from their external law firms and have introduced new charging models (though it is interesting that these new models appear to represent a low proportion of overall spend).

A majority of law departments (78%) include some number of non-legal staff.  The survey does not address specifically the extent to which contract or commercial managers are coming under the wing of the General Counsel, though IACCM benchmarks show that this has increased in recent times and is now the typical situation in the largest corporations. This appears to be a result of the concern that General Counsel have over their ability to have insight to the business, plus the challenge of workload. By consolidating the contracts teams within legal, they tackle three issues:

  1. They gain control over one source of potential legal risk which can arise from contracts staff making unauthorized or (legally) unwise commitments;
  2. They gain increased visibility to the business deals and trends;
  3. They obtain incremental resources that are typically lower cost than hiring lawyers and can offer some relief to growing workload.

On this last point, recent benchmarking by Rees Morrison indicated a fully-loaded hourly rate of $193 for the average in-house lawyer. The equivalent average for an experienced contract manager (not administrator) is approximately half that number (based on the 2011 IACCM salary survey).  Since commercial contracts work represents 40- 50% of total workload in many in-house legal groups, there is significant potential to cut costs through more effective use of qualified contract managers. Case studies suggest that law department costs can be reduced by up to 15% through this means.

The benefits and the dangers of this consolidation have been the subject of previous blogs. If the General Counsel appreciates the differences between contract management and the role of the lawyer, it can be an effective partnering. However, if the motivation is primarily to increase legal control or eliminate an alternative source of commercial support, the long-term effects are more likely to damage business results.

 
 
 

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