One of the useful elements of KPMG’s white paper, FUTUREBUY: The Future of Procurement – 25 in 25, is a broad yet simplistic (in a positive sense) five-step capability maturity model exploring a range of different skill areas that procurement will require in the coming years. One of these covers procurement as legal expert. This is a concept that would turn the typical relationship between procurement and legal on its head. All too often, we see that procurement organizations have an arm’s length relationship with legal, seeing the function as a potential roadblock (e.g., to contract signing and implementation) rather than an ally or partner.
The first step in advancing in KPMG’s maturity model in the legal area suggests that procurement will “have contracts written on standard legal templates with no variation permitted.” We could add to this by noting that at this early level of sophistication (yet not “stage zero” type maturity placing), procurement also has visibility into contracts with limited collaboration with legal in the contract management area – and that all contracts are done on the company’s own paper as opposed to a supplier’s. The second level of legal and procurement maturity is for “contract templates approved by legal and some variations allowed.” In this case, we would add that there is more general clause library visibility (and flexibility) overall in the legal/procurement journey, enabled in part through standardized contract management tools.
KPMG suggests that the third level of maturity is where “legal is consulted on all major global category contracts, on an exception basis.” In our own experience, we have seen legal organizations begin to develop contracting and negotiation competence at this level to collaborate on joint outcomes with procurement (this is especially the case in complex services and IT contracts which are commonplace in certain types of companies – e.g., financial services organizations).
KPMG’s fourth level of maturity suggests that a “legal expert [is] employed full-time in procurement as part of all category management contract discussions and negotiations.” Here at Spend Matters, we’ve seen this work effectively in BPOs such as Procurian (now Accenture) where there is a defined collaboration between category and legal/contracting teams to put contracts in place more quickly than would otherwise be possible in normal sourcing situations – and with the most favorable clauses.
Finally, on KPMG’s legal and procurement maturity model, we see a situation where “contracts are transparent and visible to all parties, tied to supplier scorecards and P2P process, and linked to incentives and mutual regard/risk clauses.” A worthy ambition. And one achieved in part by some of the most advanced procurement organizations we’ve observed. But for the vast majority of companies, a huge makeover will have to occur in legal and procurement collective advancement for this to have any remote chance of happening in the next decade.
You can download the full KPMG paper if you’re interested in more on the topic.