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Contract Benchmarks: Do They Matter?

April 28, 2011

* Only 11% of organizations are consistently successful in imposing their standard terms and conditions – but they are overwhelmingly from Procurement.

* Sell-side legal and contracts groups are increasingly struggling to get their standard terms accepted by business customers; some spend a lot of time fighting, while others have recognized smarter ways to manage risks and variations and are changing their negotiation strategies.

* 32% of contracts and legal groups have outsourced some elements of their contracting process, improving its quality and freeing skilled resources for more important tasks, such as earlier involvement in deal structuring and analysis.

* The average cycle time to negotiate a medium-complexity contract is 7 – 10 weeks. But top quartile companies achieve 5.1 weeks and those in the bottom quartile take almost 16. On average, international contracts take about 20% longer to complete  than domestic agreements. Companies that shorten cycle times gain the benefits of increased speed to cash and less exposure to competitive challenges or changes in market conditions / requirements.

* Productivity of contracts professionals, measured by the average number of contracts handled, varies by more than 100% between high-performing and low-performing organizations. This is after normalizing for role and complexity and reflects factors such as clarity of process, timing of involvement and extent of automation support.

These statistics come from the myriad of data that IACCM has collected through its recent series of contracting benchmark studies. Participants will shortly receive the full results and start using them to drive performance analysis and improvement. But that means the vast majority of contracts organizations – whether within Legal, Commercial, Sales Operations or Procurement – will remain blind to any significant data, because our research also tells us that almost 90% of organizations have virtually no insight to comparative information on contracting process or organization.

Is this absence of data due to difficulty in acquiring it, or because it doesn’t really matter? Historically, it may well be that no one considered it important. Contracts were viewed as important items, but as by-products of the sales or acquisition process. Today, leading organizations (as revealed by the benchmark study) have grasped that the contracting process is itself important and can in fact drive the quality and efficiency of many internal commercial practices. Academics share this view, with a growing number highlighting the competitive advantage to be gained through superior contract and commitments processes.

If you recognize the importance of benchmarks for your business (and the impact they can have on process improvement and investment), you may wish to take this chance to submit input to the surveys and thereby gain access to the results. There is no charge to IACCM members for this valuable output.

To simplify the process for input – and the time required – we have divided the study into three sections. I hope you will complete all of them, but if you are selecting between them, I suggest that Performance Measurements may be most useful, followed by Value Proposition.  All data remains confidential.

The survey links are:

Performance Measurement survey, please visit: https://www.surveymonkey.com/s/PerformanceMeasurements

Primary Areas of Activity survey, please visit https://www.surveymonkey.com/s/PrimaryAreasofActivity

 Value Proposition survey, please visit https://www.surveymonkey.com/s/valueproposition

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