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Contracting Ethics On The Decline

September 29, 2009

More than a third of contracting professionals have observed a fall in ethical standards as a result of current business conditions.

The IACCM survey on the global economy offered an insight to a question many have been asking – has the financial collapse led to a new sense of values in the business community? Only 4% of respondents reported an improvement.

Sell-side contract negotiators were far more negative about falling standards than their buy-side counterparts. More than 40% of those on the sell-side cited incidents of ethical failure. The commonest issues that they saw as “unethical” were aggressive attempts by buyers to impose new terms in existing agreements and to push for price decreases with no recognition of the possible consequences. The big issue for the supplier arises when there is a failure to recognize the need for any concessions or mutuality.

Payment terms are another of the most commonly mentioned topics – with a high number having experienced unilateral extensions. This is where ‘cheating’ becomes most evident. We have experienced this at IACCM. Rather than formally acknowledging that they are extending the payment period, some of the largest corporations simply take delaying tactics to avoid paying. For example, they issue invoice instructions and then change the payment center and address without notice. When asked where payment has gone, they say that the invoice was sent to the wrong address. By this means, they pretend that they continue to pay within 30 days because they shift their measure to receo=ipt of a ‘correct’ invoice.

Certainly, for IACCM, this has meant a growing number of invoices with ageing of 90 – 180 days. Not only has this damaged cashflow, but it is also costing a significnat amounnt in extra work chasing and ‘correcting’ the onvoice. 

Behavior such as this by suppliers is mirrored in concerns over internal behavior, with sales negotiators highlighting the tendency of their colleagues in Sales who, in their desperation to win business, exaggerate capabilities or make commitments that cannot be kept.

Full results of the study will be announced shortly.

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