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Why only seven?

January 25, 2012

I was in conversation recently with a partner at one of the largest international law firms. We were discussing ways that contracts can be an obstacle to doing business. As an example, my companion cited one of the largest technology and software companies. “It took seven escalations before we could get hold of an editable version of their contract”.

The lawyer’s client – quite unreasonably, I suppose – wanted to negotiate certain points in the vendor contract. They proposed to do this through red-lining – which for most companies is a well-accepted approach. But not for this particular vendor. They do not welcome amendments, or indeed negotiation in any form. It creates extra risk, extra costs and is counter to the philosophy of their leader. So, next to an outright no, they do their best to make it impossible.

For a while, due to market pressure, they decided to build up a large contract management team. However, its purpose was not to facilitate customer service, but to act as a source of compliance. They monitored the Sales organization to prevent deviation and they acted as a buffer to the customer – essentially saying no a bit faster and with a smile.

But that approach didn’t work. Many of the contracts professionals didn’t much like that job and some even started campaigning on behalf of the customer, because they could see the damage that the approach was doing to market relationships. So the vendor had a fix for that. It decimated the contract management headcount.

Many may find it surprising that a company can still operate this way, though in truth it is just an extreme example of the way that many large corporations behave. There is of course a need for balance; complete flexibility over terms and conditions would not be affordable or sustainable. But I shall watch with interest to see how this particular vendor fares in today’s competitive markets and whether the next step will be to address their contracting process, or perhaps to see a steady erosion of customers.

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