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Legal and Procurement Undermining Performance

September 8, 2011

Yesterday I found myself once more in the midst of a conversation about the relationship between Legal and Procurement. It had all the familiar tones about a lack of empowerment and trust resulting in protracted negotiation cycles and limited contract flexibility. The background (in this case for a major international banking group) carried all the usual hallmarks: standard templates that are not appropriate for the nature of the acquisition; rigid, risk averse terms and conditions; limited dialogue between procurement staf and lawyers; frustrated suppliers and an inability to adequately trade on terms and conditions.

As one General Counsel recently observed (having explored a similar situation in his own company): “I realize that we are often fighting for functional positions, rather than negotiating the real business interests”.

All of this is so avoidable. I have written on the subject in the past and IACCM has highlighted some of the success stories in webinars and Ask The Expert interviews. Companies such as P&G, CSC, LG Electronics and Rio Tinto have moved beyond this internal barrier and are reaping the bottom-line rewards.

To assist the development of better practice and process, this will be one of the topics addressed at the next IACCM conference – the Global Forum for Contracting & Commercial Excellence. For now, let me share ‘ten tips’ for improved Procurement and Legal cooperation (these are not in any particular order of priority).

The relationship between Legal and Procurement frequently constrains value as a result of inflexible contracting and negotiation. At the IACCM Global Forum, delegates will gain insight to more effective collaboration between Legal and Procurement:

 

1

Develop contract templates applicable to each type of acquisition

2

Define pre-approved fall-back terms for frequently negotiated provisions

3

Agree training / competency levels for delegated authority on contracts

4

Establish regular senior level reviews between legal and procurement

5

Monitor contracting cycle times and work together on improvement

6

Develop joint projects e.g. Innovation, performance-based contracts

7

Ensure category expertise on legal services and consider placement within Legal

8

Work with each other to develop contracts expertise within Procurement (don’t hire lawyers to compete with in-house legal)

9

Partnering on development and use of appropriate software tools to ensure visibility and control

10

Co-develop contracting strategies and strategic plans
3 Comments
  1. John Tracy permalink

    I’ve never been a fan of templates and think a contracts framework that highlights the types of clauses that are needed for each type of agreements and a library of alternative clauses with explanations on which situations the alternative should be used in and why is a much better approach. Templates have the tendency of dumbing down the people that use them as rather than go through the process of determining what’s needed and why (which improves contracting skills) people pull out a template and try to force fit it into a situation. Templates are also frequently drafted from the perspective of dealing with average risk situations and average risk suppliers and people use templates rather than consider the risks that may need to be managed in that situation.

    I agree with all the other points and would add one addition suggestion which is to review the success you have in getting each term. If you are constantly not being able to get people to accept a specific term(s) you probably should consider changing them so the people negotiating them aren’t constantly wasting their time trying to negotiate something that is highly unlikely they will get.

    • John, thank you – you make an excellent point regarding templates. I agree that the right thing is to drive responsible decision making.

      And of course, as you know, on the second point, we urge our memebrs every year to undertake such audits when we see the same tired list of ‘most negotiated terms’.

  2. Andy Sirkus permalink

    Your ten steps works well for sales contracting as well. With the exception of item 7, we have had success following that approach.

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