IACCM Conference: Day 1 – Integrated Relationship Management, Path to Commercial Excellence

Monday was day 1 of the annual IACCM (the International Association for Contract & Commercial Management) conference, and of course Spend Matters was there. IACCM is the global forum for innovation in trading relationships and practices. It has more than 33,500 members across 159 countries representing 13,649 corporations from all industries. So it’s fair to say it is widely represented, and this was evidenced by the cross section of the 200+ delegates, with an about-even mix of male/female attendees, all primarily from around Europe. Although the public sector was noticeably under-represented.

This year’s conference was held at the beautiful Hurlingham private members’ club in Putney: beautiful grounds with croquet lawns, tennis courts and rhododendrons (all very English-looking), and a large glass-ceilinged foyer which was open and airy and made for a great place to network. The theme was “commercial excellence” and Tim Cummins, CEO, explained why that was chosen: “Executive management have grasped the critical contribution that commercial excellence makes to their business. At its core it means understanding and responding to market needs … achieving commercial excellence demands collaborative, integrated behaviours within the organisation and across the supply chain.” The day was made up of interactive workshops and presentations and focused heavily on relationship management.

We couldn’t attend all the sessions, running in parallel as they did, but we did cover quite a lot. Peter will be attending day 2 and reporting on some of those discussions.

Integrated Relationship Management – Maximising Value from the Start was facilitated by Andrew White of Bird and Bird (law firm) and Jim Bergman, a VP and Research Lead in value-driving contract management from the IACCM. The workshop explored success in the execution phase of major contracts. Jim commented that in his experience English law is changing, and that the judiciary now recognises more and more that contracts are not just legally binding entities, but have moral value that the law also needs to support.

You can, we are told, download the slides from the IACCM website in a week’s time, so here are some highlights that came out of the interactive sessions. A key message was “the number 9.15 percent” which represents how much more profit organisations could make if they did contracting with “lawful perfection.” That is, the average impact to bottom line performance that results from weaknesses in contract management. (The figure, we were told, was arrived at from research carried out by the IACCM on member organisations). That figure stands at 4.6 percent for the public sector – maybe that’s why there were fewer of them there, maybe they’ve got it clinched?

Up to 20 percent of contract value is lost in non-compliance with commercial terms, or a lack of understanding of the commitments made. The major causes of weakness were discussed as: disagreement on contract scope, contract change management, performance failure owing to over-commitment, among others. The 9.15 percent figure looked at regionally becomes 8.5 percent EMEA, 9.5 percent US and 13 percent Asia. So what are we doing wrong? Jim produced a really good table, borne out of the research, giving the top most negotiated/disputed terms on the left and the most important terms on the right, with the emphasis being that we could avoid the problems on the left, if we focused more on the issues on the right. Top of the list was ‘limitations of liability’ left and ‘score and goals’ right. ‘Indemnities’ left and ‘responsibility of parties’ right, and so on.

So where are we going wrong? Answers included being too risk-averse, legally driven, reactive, using inappropriate terms, inflexible, and not being well enough equipped. 20 percent of project failures, we are told, are caused by poor contracts. So – are we forcing the wrong relationship into the wrong form of agreement? Inappropriate contract structure occurs in 15 percent of contracts.

The audience was asked to spend 10 minutes in table groups considering the following questions, here are their main points:

What are the root causes of failures?

Faulty handover process from the negotiation side of the contract, misinterpretation of the same clause between negotiation team and delivery team – so lack of clarity.

Miscommunication and Time, partly because in large contracts people come from different industries and differ in how they interpret terminology, they also come from different cultures and translate things differently. So we need more standardisation and more face-to-face interaction.

Lack of understanding of the importance and role of the contract i.e. getting stakeholder buy-in. We need to start with a good contract that is built for collaboration, we need more standardised contracts in place that we can build on for the agreement.

What SRM techniques can we use to prevent failure?

Fundamentally it’ about getting people together more. A relationship works better if you’ve actually met the person. We need regular debriefs on how it’s going, it’s not just about T&Cs but how we can make things better.

Earlier engagement, getting the contractor to work with you to build the contract.

With more and more outsourcing, relationships are digital and global. We need to look at how we can align cultural and language differences. A lady from Norway said, as a nation we haven’t been used to working with the rest of the world. So we have to build Trust.

More Frameworks, for longer-term contracts, they allow you to contract in chunks.

We need to understand other organisations’ goals – get the contract managers to be part of the sales team.

One lady from a large software firm remembered when it was normal for most large contracting firms to have a ‘relationship manager’ who could build a more consistent approach into the relationships that are breaking.

How do we get failing engagements back on track?

Scope will change – there’s no doubt about it. The biggest argument is ‘who is going to pay for it?’ So why not have a contingency fund, rather, an ‘evolution fund’ and be transparent about it. There’s a risk to that, but also a lot of value. Some companies do not want to spend a penny more.

Make change control part of day-to-day procedures, monthly agenda items, and a required field in reporting.

It’s important to have the process written down, a relational charter between supply-side and buy-side. You have to have litigation in place before you get to disputes.

So – a very packed session form a diverse set of sectors, and my favourite quotes from the session:

"Contract structure matters – more than getting it out the door on time," and, ‘if we let Procurement write the contracts it would work,’ and Jim's concluding line likening us with a car manufacturer: “Would we be happy if our output resulted in 40 percent recalls and defects? Customers simply wouldn’t come back. So we need to be preventive not reactive.

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The survey is online now for next year, so it’s worth visiting the website and filling it out (10 minutes) then you will receive the results by email as soon as they are published.

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