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A Success Story

December 8, 2011

When I talk with contracts and commercial teams about the potential to add value, some are enthused and others give me blank looks. It can be hard to imagine quite how to deliver added value through improved contracting. We have mostly been taught to focus on individual deals and to avoid bad things happening. So it can be tricky to envisage how a more portfolio driven view might actually make GOOD things happen.

I thought I would share this recent example that came from a long-time IACCM corporate member in the United States.

Having read IACCM’s annual study on The Most Negotiated Terms, they wanted to improve contracting effectiveness, so started exploring where time is spent and what impact that had on outcomes. What they discovered was a direct correlation between the timing and duration of the contracts organization in requirement definition and the subsequent amount of time spent on negotiation. They then tracked through and found similar correlation to the likelihood / frequency of claims and disputes.

Essentially, in those deals where they were involved earlier and spent time ensuring clarity of scope and requirements, the negotiation time fell significantly and the ‘adversarial’ behavior over risk allocation reduced (though total cycle time from inception of bid to contract signature remained much the same). The big value difference came in subsequent customer relationships – those where the requirements had been thoroughly defined had 40% lower incidence of claims or disputes, which of course meant higher levels of customer satisfaction, better margins, increased renewal rates etc.

This is one of a growing number of examples where real value can come from contract process analytics. The challenge for many groups is that they have no access to data because they don’t measure the right things. But that is a different story and has been covered by a number of previous blogs that looked at metrics ….

 

 

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