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Contracts as a fish bone

October 5, 2012

I was on a panel last week where we were discussing some of the findings from IACCM’s ‘Future of Contracting’ study. One of my co-panellists (the COO of a major insurance company) gave her observations and experiences, especially  in the context of outsourcing.

 She mentioned that her company, like most organizations, had allowed outsourcing to develop without strong central controls or coordination. While there were rigorous approval processes, individual deals and relationships were typically implemented by a project owner. Over time, it became evident that outsourcers were a key part of  the business fabric; indeed, internal research revealed that a total of 153 outsource agreements had ’emerged’ over the past 10 years.

This had led to realize that they needed a focus on how to make such relationships work better; how to ensure coordinated priorities; how to create an improved balance of rewards and penalties to generate the right behaviors. There were several revelations when it came to contracts and the contracting process:

  1. Contract discussions must occur early in the process. This should be to ensure the right shape to the deal and also to validate needs and capabilities.
  2. ‘Storing away the contract is storing away problems’. Contracts must be living instruments of governance and relationship management.
  3. The contract is central to relationships and conversations. A failure to keep it updated causes renegotiation to be a major event that occurs when everyone has become unhappy.

In a fantastic analogy, mty fellow panellist described the contract as being ‘like the skeleton of a fish – it holds everything together and without it, the fish would simply flop around and go nowhere’. 

 

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