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Legal & Contract Support In Outsourcing & IT Services

June 26, 2012

IACCM recently published its report on current approaches to Legal / Contract Management support in the outsourcing and IT services industry. The study focused primarily on large US and European providers, with some reference to the models being pursued in India. I am providing the executive summary because I think it may be of wide interest; similar studies of trends inothe rindustries will follow later this year.

The executive perception of the importance of contract and commercial capability has increased over the last 5 years. However, this has not always been accompanied by satisfaction over the ability of existing resources and organization to rise to the challenges of today’s markets, nor resulted in clarity over where such support should be placed (for example, within Legal, Contract or Commercial Management groups, or integral to the business units or delivery teams).

 Increased regulation (affecting both the industry and its clients), growing reputation and supply chain risks, continuing pressure on margins and aggressive demands on contract terms and performance have combined to raise awareness of the importance of contracting discipline and commercial creativity.  Market volatility, client uncertainty and competitive actions have driven a need for greater continuity of resource and oversight throughout the lifecycle of the contract, including more frequent renegotiation.

 An appreciation of the need for front-end integrity and back-end governance standards is also affecting customer selection criteria. Growing sophistication on both sides (customer and provider) is generating wider appreciation of the broader ‘costs of doing business’ and that successful outcomes require better negotiation and management of contracts.

 In the words of one CEO (provider): “I used to think that good relationships emerged quite independent of the contract. Today, I appreciate that a good, sustainable relationship is underpinned by the contract. It offers a critical management framework and the surrounding process offers the management barometer for relationship health”.

 Or as expressed by the Chief Procurement Officer at a top 5 UK corporation: “We have traditionally seen negotiating the contract and managing the contractor as two distinct activities. In complex projects, that is a recipe for failure. We have to become much better at ‘defining the handshake’ between these two activities – and that includes thinking about more integrated skills and suppliers who can show they understand that linkage.”

The Vice President of Sales at one global provider summed it up like this: “Growth must be balanced with judgment; we have to design deal structures that support the bottom line and reduce the potential for disputes, both pre and post-award. Commercial contract management has a critical role in ensuring this and we have been hiring to build our capability”.

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