The issues with Global Contracts

The September edition of IACCM’s ‘Contracting Excellence’ magazine will focus on Global Contracting. This week, I held a series of calls with members of our editorial board to discuss content.

As always, this resulted in lively and interesting conversations as we explored the main issues associated with global contracts. They ranged from areas such as the need to streamline internal review and approval processes, to differences in the way that companies structure their global deals, to topics such as the complexity of managing across multiple regulatory environments. We also discussed more technical questions, such as approaches to dispute resolution and governing law .

An issue that led to prolonged conversation was the suggestion by one participant that many customer organizations undermine the value of global contracting because of their failure to design a process to support it. In his experience, the negotiation can be grueling, with the customer driving for high levels of consistency on price, service delivery, specifications and terms. Yet when it comes to implementation, they have no process through which the contract is effectively communicated and implemented. As a result, many times the local subsidiary insists on renegotiation. The original goals and objectives are frequently forgotten. Performance suffers – and the supplier is then blamed for failing to meet the terms of the contract.

The problem is that the success of global deals depends on a mutually agreed process for its dissemination and management. I think much of the difficulty comes from the fact that many Procurement organizations remain focused only on price, not on performance. They use global agreements to drive discounts and savings, but relinquish on-going management to local entities that may have very different goals and objectives. This leaves the supplier with an agreement based on one set of economic assumptions, but a reality that is very different. They are then accused of being inflexible or unreasonable when they struggle to meet the actual requirements of the customer, or seek to charge more for these new requirements.

We will continue this debate – as well as covering a range of the other challenges for global contracts – when we publish the September edition of Contracting Excellence. Meanwhile, your ideas and comments are welcome – especially if you want to volunteer as an author!