The Terms That Matter
At a recent roundtable discussion, I was explaining IACCM’s annual study of the most frequently negotiated terms to a group of senior in-house counsel. One of them very intelligently raised the question ‘What terms lie at the heart of most disputes?’
Now this is a prespective we have never directly researched. Each year, we agree that the focus of many negotiations tends to be negative and risk-averse. We have established the areas that should receive more attention. But we have not directly tackled the question of how many contracts go wrong, and what is in dispute when they do. So this year, we have set about fixing that deficiency with some new questions.
IACCM is currently in the process of collecting data for its latest ‘most negotiated’ study and has inserted questions relating to the frequency and source of claims and disputes. (You can see / respond to the survey at https://www.surveymonkey.com/s/topterms2012). While there is a long way to go before the final results (the study was only launched a week ago, so at this point there are about 800 replies), I thought you might be interested by a snapshot of the answers to date.
Based on those answers, the ‘top 7’ areas which engender claims or disputes are:
- Delivery / acceptance (cited by 43%)
- Price / charge (38%)
- Change management (33%)
- Invoice / late payment (29%)
- Performance guarantees / undertakings (28%)
- Service levels (27%)
- Scope and goals (23%)
Of the clauses on which we spend most time during negotiation, confidentiality, IP rights and data security are apparently the least invoked. When there is a significant claim or dispute (which occurs on average less than 10% of the time), these terms appear to be relevant in only 10 – 20% of cases. So it would seem these particular clauses actually matter about 1 time out of 50; indemnities appear to be important about 1 time out of 40; and liabilities one time out of 30.
As the study progresses, we will need to consider what this data tells us about negotiation and increasing its effectiveness and efficiency. Certainly a good topic for a future roundtable!
If you would like to encourage your contacts and colleagues to participate in the latest survey (which means that they will of course receive a copy of the results), please feel free to do so.
FOOTNOTE – July 2011. The final results have now been published and can be viewed at http://www.iaccm.com/library/?id=3958&src=plc
Commitment Matters 
Surely, the most common areas for dispute vary widely depending on the type and structures of the business? Although the statistics are definitely worth taking into consideration, should not one try and discover what the most common causes are for problems in your own business too? Another point to consider is also the quantum of damages for each different area, if the quantum is small then the relatively high frequency make it less important.
Iain, thanks for this comment. You are of course right – and the full study results will explore variations between geographies, industries and business size. And you proceed to highlight exactly why we undertake this survey – because we think that contracts and legal groups need to be working far harder to understand the data within their own businesses. We hope that our release of this information will cause leading practitioners to stand back and say ‘Is that the case here? What patterns do we see, which ones really matter – and how might we improve our performance?’ IACCM can gather data and make suggestions – but in the end, it is the decision of our members whether or not to undertake internal analysis and work on it.