Hi Jan
I am sure we can connect you with a few organisations. It would help to know what scope you envisage - for example:
- will this be a 'commercial CoE' or a more limited 'Contract Management CoE'
- will it cover Sales contracting, Procurement contracting, or both?
- are you envisaging a Center-led model (i.e. core activities undertaken by the CoE, but remote staff still report into business units) or a 'Centralized' model, where all relevant staff have central reporting line

If your answer is that right now, you don't know and part of what you want to discuss is what options to consider, it may be worth us having an initial discussion to cover the pro's and con's of each option. On the other hand, if you know the answers already, let me know so that we connect you with the right people.

Contact me at tcummins@iaccm.com and we can progress from there.

Hi Jan,

I have a direct experience in this space and we can share where you are with in the journey.

Regards
Vithal

With regard to technology, Docusign and others have fairly secure systems in place to ensure the integrity of e-signature contracts. Some organisations, however, still try to arrange in person signings where possible. In these circumstances, though, you will need to ensure that all signed contracts are stored safely and in a searchable repository as finding signed contracts remains a perennial problem for many who do not have comprehensive document repositories deployed.
With regard to your second question, many organisations have their legal functions handle the contract signature process. The larger the organisation, however, the more impractical such a set up can often be, as there are just not enough resources. Many organisations still have the sales function handling the signature process. There should be strict guidelines and processes in place to help ensure integrity and to prevent mistakes such as wrong versions being signed etc.

Hi Stephen
I'll be happy to speak with you on this, but at a simple level we recommend dividing terns between those that are 'passive' (no direct impact on process - an example is indemnities) and 'active' (direct impact on process).

When a passive clause changes, the economic benefit will typically be through a trade-off - eg a compensatory discount for reduced risk. An active clause change is likely to have a direct impact - eg on resources required, time to cash etc.

Hi Tim,

Thank you for your response. I am not sure I understand your reply. I will try to be more specific about what I am looking for. Our legal has developed a set of 33 contract requirements they would like to see in our contracts (we mostly use the supplier's paper). For each of the 33 requirements, legal has provided an ideal position, as well as fallback 1 and 2 positions.

Working with our legal, we developed a spreadsheet with points for a contract from 0 to 100. Each requirement is assigned a point value percentage, which represents its percentage of the overall contract score. Percentages of that overall point value are assigned to each position (Ideal, Fallback 1, and Fallback 2. Using this spreadsheet, we are able to come up with an overall contract score for each contract, showing how well a contract conforms to what legal requires.

By scoring each contract prior to negotiation, and after negotiation, we are able to show which contract requirements were improved by negotiation and the increase in the overall contract score. For example, we can show a stakeholder that over negotiations improved the contract score from 60 to 70.

What I am struggling with is how to show the stakeholder what that improvement represents to him or the organization in actual dollar value. I know there is a soft benefit to, say, for example, improving our indemnification language to include all third party IP infringement, not just U.S patent infringement, but how do I translate that improvement to a dollar value? Thanks in advance for your help.

Hi Stephen
Thanks for clarifying!

So based on your description, the score you have created is essentially a risk score - which in itself is valuable (and if you are not already doing so, you may want to think about ways to consolidate the results so that you can identify scores by segments, such as different categories, different parts of the business etc. This is great for management reporting, to show how risk levels may vary).

Unfortunately, 'risk' does not in general translate to a $ value, unless you can show that you managed to gain a trade off. For example, maybe you conceded a level 2 position on third party indemnity (because actually you decided the risk here was low), but in return the supplier conceded an improved service level or an extension of payment terms (both of which would have a $ value).

My original point was that many of the traditional legal terms don't directly translate to a monetary gain - they are more focused on avoiding loss or obtaining compensation for failure. But the business terms will represent financial costs or benefits - for example, speed of delivery, service level performance, the right to adjust volumes or usage. Your negotiators should be looking at opportunities to off-set agreement in one area with beneficial terms from the supplier in another.

I guess your challenge here may be that the 33 terms agreed with Legal are not in fact those which represent real economic value - but in that case, maybe you need two indices, one for risk level and the other for economic benefits. Your negotiators should be equipped to understand the right balance in any given situation - how real is the risk versus the opportunity for a gain.

I hope this makes sense, but if not, let's arrange to speak.

I agree with everything Tim wrote.

Re: two indices ("I guess your challenge here may be that the 33 terms agreed with Legal are not in fact those which represent real economic value - but in that case, maybe you need two indices, one for risk level and the other for economic benefits. Your negotiators should be equipped to understand the right balance in any given situation - how real is the risk versus the opportunity for a gain.")

As Tim said, a risk score for revised terms does not necessarily translate into economic value - so much of this math would be "informed speculation" so to speak. As you mentioned, "there is a soft benefit to, say improving our indemnification language to include all third party IP infringement, not just U.S patent infringement."

Since each situation is unique, the economic value would be a sliding scale based on the size of the contract. For buy-side sourcing and procurement, your monetary scale would need to be informed by an estimated value of the "typical" procurement order anticipated with the vendor. You may want to include a third index that provides you with anticipated volume. (Again, all of this is educated guesswork without knowing more about your business.)

For example:

Say the terms initially were at 100 in terms of risk, but then were reduced through negotiation to 50 based on your scale. Here's the fuzzy math part: we assign this particular clause a value of $10,000 per order if risk is at 100 (full risk = full expense to your company). The anticipated volume of orders impacted by this clause is 20 per year.

So the amount of monetary risk reduced (with guesswork disclaimers above) = (50/100) * 10,000 * 20 per year = $100k annually.

Is that what you're driving toward?

Personally, I'd recommend embracing the risk scoring as the key metric without adding in the monetary value (unless it's a tangible asset with value you can trace). With the subjectivity involved, adding in more assumptions to extrapolate out to "hard numbers" could potentially confuse leadership if they aren't aware of the guesswork behind them. If they can better understand the risk rating, then they will be able to see trends for the legal team - and negotiators - who are adept at lowering their risk without needing a dollar amount. Dollar amounts using the formula above could be gamed or skewed more easily than looking at the average risk score reduction achieved by a negotiator.

Finally, there are also CLM systems that will automate all of the above for you and your end users if you're looking to move out of Excel. You may be using one already that could have these indices added into it and do the calculations for you.

Furthermore, depending on the tool used, you can leverage AI to read third-party paper, compare it to your legal baseline for the 33 terms, and have it assign a risk rating automatically to be reviewed/confirmed by legal. That would require training the AI for your use case, which is often only accessible/affordable for large enterprise implementations.

Please let me know if this was helpful or if I'm off-base! Happy to discuss further.

Hi Lisa, the organisation I work for has several long term contracts with the Australian Department of Defence. Some of these contracts include the use of scorecards, which are taken very seriously by both parties. These are followed to the letter and form part of our PBC's.

Greetings, thanks for the question. I look forward to the responses from other practitioners in this space too. In the meantime, I suggest you take a look at our contract standards clause library here: www.contractstandards.com/public/contracts/statement-of-work. While this provides a framework, the key is in the level of detail that you apply to the "Supplier Tasks and Responsibilities" section - the detail required is application-specific, so there are no hard and fast rules. I have used detailed project plans and, in some instances, references to operational collateral (handbooks, processes, and procedures, referenced but not included) to get to the level of detail necessary to define what is required. This works fine for transactional engagements but cannot cope with more complex requirements - where there is uncertainty in delivery or deliverable (or both!). Then, you'll need an agile approach to the SOW. Hope that helps.

Thanks so much for your message and yes we are gathering lots of "good news" stories and as you say, examples of how organisations are demonstrating their agility and adaptability in times like this. Thank you for sharing the story of Meex - I will personally look this up and add it to the output that we are generating. We are indeed focusing on how IACCM supports small businesses more and more and I like your idea about a blueprint for agility. Thank you again and please do keep your ideas coming - they are much appreciated! Sally

Alma, my apologies for not spotting your post earlier!

The elements you mention are components of a Commercial Management process. To gain a comprehensive overview, you may find the IACCM 2019 Benchmark Report helpful - it sets out the various activities associated with the contracting and commercial lifecycle.

If you would like to discuss how you might best approach building the Commercial function, I'd be delighted to arrange a call. You can contact me at tcummins@iaccm.com