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Contracts Moving Center Stage

May 13, 2008

As I prepare my presentation for the Ariba LIVE conference today, it strikes me just how far the topic of contracting has come in the last few years. 

The number of speaking invitations we receive at IACCM today is overwhelming. There is hardly a day when one of the IACCM staff or a member of our Board or Advisory Council is not presenting on the subject somewhere in the world. Yet just 5 years ago, it was a very different story. Suggesting that anyone – outside a few idiosyncratic groups – would want to know about contracts drew bemused looks. So what has changed?

Some of the panel questions for which I am preparing today are quite revealing. For example, the initial discussion topic is spend management and some of the challenges this represents for companies in today’s global markets. The answer, of course, is that cheap sources of supply are commercially risky sources of supply – so you had better have some astute and knowledgeable deal-makers and contract managers backing you up. Culture, rules, practices, regulations – all represent real and tangible risks to reputation, assets, supply security and recourse and need to be addressed through the selection, negotiation and contract management process.

And spend management has now expanded beyond just low cost commodity sourcing. Suddenly everyone wants to know how to insert ‘value’into relationships and how to ensure ‘preferred’ status. The answer once again comes down to creative contracting – seeking terms and offerings that represent differentiation. Leading companies are interested in developing a ‘relationship portfolio’, supported by model agreeements that range from commodity through solution, partnership, right the way to merger or acquisition.

Performance management, governance, supply chain integrity, asset management, data protection – suddenly there is a whole range of ‘buzz’ issues that require contracts for their resolution – and most companies lack the depth of skills and knowledge to handle them well.

Since Ariba owns this event, it is hardly surprising that technology is another topic for discussion. Again, 5 years ago everyone assumed standard terms and conditions and the use of Purchase Orders. Today, contract management software is viewed as a leading (perhaps even the leading) area of interest. The discussion in fact goes much wider, because ‘the contracting process’ is not only ill-defined in most organizations, it also lacks any technology strategy. This demands much more than contract management software; it gets to areas like e-signature and e-contracts; the use of interactive communication and negotiation tools; the need for records retention and search capabilities. It is a long list – and most companies are at the very beginning.

Finally, I have been asked to speak specifically about the challenge to the Corporate Law department. This is an area that really interests me because we are seeing such a rapid awakening of the in-house counsel groups to the need – and opportunity – of change. The rule of law and the role of lawyers are both topics of growing concern, since traditional approaches are constraining performance in the global economy. The law creates uncertainty in this emerging world; it introduces cost, complexity and delay. Yet at the same time, good contracting practices can alleviate this and offer a structured framework to assess and manage business risk. So enlightened legal groups are jumping onto the oportunity that ‘best practice’contracting offers, to move them right to the heart of business operations and into some of the most interesting challenges that confront commerce today.

 

One Comment
  1. I strongly agree with what has been stated, and the practical enhancement to this phenomenon is to implement the e-contracting process at the universities and business institutes curriculums. I even encourage the embedding of this approach into the body of the contracts language. Such practice will enforce the utilization of today’s technology into the contracting activities which in turn will elevate the Spend Management efficiency.

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