Attitudes to contracting
What is the purpose of contracts and to what extent does a good contracting process contribute to business results and outcomes?
According to a recent IACCM survey, weaknesses in contract terms and negotiation have a major impact.
- 63% report that they are frequently a cause of cost overruns
- 59% report that they are frequently a cause of project delay
- 28% report that they are frequently a cause of reduced future business opportunities
So what should you be doing differently? The IACCM ‘Attitudes to Contracting’ study provides a useful contribution in answering this question, as well as indicating what purpose contracts should be serving.
- It confirms that the quality of contracting – both process and document – has a material impact on project outcomes.
- It highlights the practices that frequently contribute to avoidable project failures and under-performance.
- It offers insight to the areas and approaches that, if improved, would generate better business results.
The study is unusual in that it combines views from a variety of functions, industries and geographies, offering perhaps the most objective view of the role of contracting yet undertaken. There are clear messages for industry and public sector bodies, especially with regard to project contracting. Among them are:
- Failure to establish and / or communicate clear objectives is a major issue in subsequent contract negotiation and contract management.
- This issue, together with late engagement of commercial resources or the imposition of industry standards, frequently contributes to use of risk-averse contract terms that distract from establishing key performance criteria and processes.
- Problems with defining project scope cause subsequent disputes and disagreements over change management, charges and payment.
- The use of traditional, legally-driven forms and documents renders most contracts of little practical use to delivery teams and project managers, thereby undermining their primary value as instruments of communication and understanding.
- Few organizations appear to make effective use of past contracts as a source of learning. Procurement contracting is especially weak in this regard.
- Only 16% of respondents feel that their contracting process ‘always’ achieves a positive impact on the relationship between the parties – suggesting there is major opportunity for improvement.
Can projects succeed in spite of poor contracting? The answer is yes, of course they may. But the study confirms there are many ways that the likelihood of success is undermined in the absence of an effective process.
The IACCM study ‘Attitudes to Contracting’ is available in the member library at http://www.iaccm.com