Yesterday at SciQuest's NextLevel customer event, IACCM’s Tim Cummins gave a great introduction to everything that we’re doing wrong with contract management from a procurement and legal perspective (hint: it’s a lot). Not only are we focusing on measuring the wrong contract KPIs and metrics once contracts are in place, we’re also investing too much time negotiating and focusing on the wrong contract clauses when it comes to creating better value (and reducing tangible and pragmatic risk) with our suppliers up-front as we define the basis of relationships and expectations.
Consider, for example, the reason contract disputes occur in practice today. Referring to IACCM’s annual survey data, Tim suggested that 77 percent of respondents cite “scope or goal change” as a frequent source of dispute (and 21 percent cite this as an “occasional” source of dispute). 55 percent point to responsibilities (or failure to live up to responsibilities) as a frequent dispute cause (43 percent occasionally). And 48 percent cite an experience over based on “contention over price change” as a frequent cause of dispute (with 44 percent noting this occasionally).
From a contract negotiation and management perspective, much of our work is centered on concerns over liability and litigation rather than partnering – yet disputes leading to litigation are so much further down the list of realized contract maladies. Instead of focusing on these areas with a legal lens when creating and implementing contracts, we should be focusing, in IACCM’s view, on such areas as performance measurement, communication, joint working, mutual objectives, dispute resolution in a non-confrontational setting, problem solving, continuous improvement, gain sharing, trust and a “no blame” culture.
It is clauses and expectations in these areas that can change procurement for the better rather than making contract management just a means to limit or reduce potential liability. Summing up the challenge today, Tim notes that “only 16 percent feel that the contracting process achieves a positive impact on the supply relationship. In short, the use of traditional, legally-driven documents renders contracts of little practical use and delivery teams, undermining their value in communication and understanding.”
Should we follow Shakespeare’s adage on disposing of all the lawyers when it comes to contract management? Perhaps!