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Revenue Leakage And The Law Department

March 22, 2011

On his Law Department Management blog, Rees Morrison has recently featured several stories that will be of interest to the contracts and commercial community.

One of these is a comment made by Mark Harris, CEO of Axiom, that long-term contracts typically experience 5 – 7% revenue leakage. In my response, I observe that  it is interesting that Mark cites 5 – 7% because that aligns exactly with a number IACCM been highlighting for several years. It is indeed common as an average (not a maximum) and it comes from a mix of sources. Among them are the missed revenue opportunities due to poor negotiation practices; the inefficiencies generated through failure to align business terms with economic cost; and the many inefficiencies and missed opportunities in post award contract management.

IACCM has often cited the causes, prime among them the absence of any coherent ownership of the contracting process.

Rees concludes that, if the number is true and if it is indicative of similar losses elsewhere, then “lawyers are letting down their clients. Somehow, better contracts should put fingers in some of those dikes, savvier interpretations of their client’s rights, or better oversight of executed contracts could turn law departments that can claim a portion of the saved money as profit centers. We need to know if revenue leakage from contracts happens at that rate and what the law department can do to apply a tourniquet.”

I welcome converts to our cause, however late in the day! But in general, I see few General Counsel ready to step forward and take responsibility for improvement in contracting process and practices. There are exceptions – CSC, Verizon, LG Electronics and HP come to mind.  But overall, as IACCM research regularly reveals, we continue to fight the battles of the past, buy-side and sell-side, with no regard to the economic cost.

One Comment
  1. Peter permalink

    Causes from a post contract management perspective,amongst others:

    (1) lack of asset register (IT context SME) leading to warranty cost overruns
    (2) incorrect or non-existent billing (telecoms; global giant)

    Of (1): yes a contracts issue.
    Of (2): not really sure this is a “contracts” issue; this is a process/systems/governance issue?

    If the definition of revenue leakage is widened in scope to capture cost overruns (really margin leakage) then we could go on… and on and…

    My take.

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