Maximizing Outcomes: Are You Choosing the Right Contract?

Insight from WorldCC Research: Diversifying Contract Types Amid Market Uncertainty

Recent WorldCC research underscores an important trend: businesses are increasingly diversifying their contract types to navigate the uncertainties and risks of today’s market. While this strategic development makes sense, a critical gap has been identified. Many organizations overlook the impact these varying contracts have on internal capabilities and skill requirements. Because of this, there’s often a lack of clear guidelines on the appropriate application of different contract models.

The Art of Selecting the Optimal Contract

Selecting the most effective contract and commercial model is a major factor in achieving successful business outcomes. This process demands astute business judgment and necessitates constructive dialogue both with external parties and internal stakeholders. To support this, I am developing a module for the WorldCC training and certification program. Here, to give a sense of direction, is a concise overview of how different contract types necessitate varied organizational structures and skill sets:

1. Purchase Orders
   • Structure: Primarily Procurement-driven.
   • Required Skills: Vendor selection, foundational contract management.
2. Master Agreements
   • Structure: A blend of Procurement and Legal, with an emphasis on relationship management.
   • Required Skills: Strategic sourcing, comprehensive contract administration.
3. Short Form Contracts
   • Structure: Geared towards Project Management with rapid decision-making.
   • Required Skills: Fundamental project management, basic contract literacy.
4. Performance-Based Contracts
   • Structure: Centers on Performance Monitoring teams.
   • Required Skills: Detailed performance analysis, effective vendor management.
5. Outcome-Based Contracts
   • Structure: Oriented towards achieving strategic outcomes, often involving integrated teams.
   • Required Skills: Outcome definition and measurement, strategic execution.
6. Relational Contracts
   • Structure: Relationship-centric, involving cross-functional teams.
   • Required Skills: Proficient relationship management, adaptable negotiation strategies.
7. Agile Contracts
   • Structure: Characterized by Agile teams, favoring iterative project methodologies.
   • Required Skills: Agile project management, continuous adaptation and feedback.
8. Alliance Contracts
   • Structure: Partnership-oriented with collaborative decision-making.
   • Required Skills: Collaboration, shared risk and benefit mindset.
9. Joint Venture Agreements
   • Structure: Distinct governance structure for joint ventures.
   • Required Skills: Joint management expertise, strategic cooperative leadership.
10. As-a-Service Contracts
    • Structure: Focused on continuous service management.
    • Required Skills: Management of service levels, ongoing vendor assessment.

Key Takeaway

It is essential to understand the unique demands of each contract type and the circumstances where each should be applied. This understanding enables alignment with your organization’s structure and skill set, reducing performance risks and ensuring that you are strategically positioned for success. This knowledge empowers you to deploy contracts that are not only legally sound but also optimally structured to serve their true purpose of supporting economic performance and business growth.