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Observations from Seasoned Negotiators

October 9, 2012

I have spoken recently with a few seasoned negotiators who work on large outsourcing and managed services deals. Their comments regarding the quality of contracts and commercial staff they encounter can be summarized in one word – ‘underwhelming’.

Each of them has observed the trend among major providers to consolidate their Legal and Contract / Commercial Management teams. As a result, they ‘seem to have taken the worst characteristics of lawyers and trained commercial managers to do their job’, was one observation. “Contracts and commercial staff seem to have become cheap surrogates for lawyers,” commented another. ‘They don’t understand the deal, how what they do affects the financials. It is all about checking, wordsmithing, document handling and processing. No real value.”

The concern is that providers have suppressed judgment in favor of compliance. “they have created people who are a counterpart to Procurement. It is a process rather than understanding vlaue. People sell the wrong thing, buy the wrong thing – and then get frustrated by the result.” A compliance mentality blinds organizations to actual risks, their potential impact or probability. Contracting becomes a box-ticking exercise and there is no counter-balance to teh subject-matter experts (or ‘subject idiots’ in the words of one negotiator) who can easily delay or derail deals because of their narrow perspectives.

Organizations seem to have lost sight of their need for people with broader and more rounded skills and understanding, who can coordinate across the stakeholders and manage the inevitable contention that arises in any complex deal. When discussing this concern with several of the major providers, they acknowledged the problem, attributing it in part to the pressures of the regulatory environment and in part to the behavior of buyers and their distorted view of compliance and risk allocation.

Added to these factors, I think there is also the problem that most contracts and commercial groups have failed to make a compelling business case for their independence. In an era of cost reduction and pressure for added-value, they have struggled to explain their precise contribution, or what will be lost without them. The benefits of ‘talented dealmakers’ are typically visible only after they have gone. Groups that are flourishing are those which are working to deliver strategic capability. They are consolidating their learning and understanding to equip the organization with the the right contracting models, updated commercial policies, empowered business units. Their role and purpose is not static, but adaptive to changing business conditions.

The recent IACCM Innovation Award entries reflect this stark contrast between those who are driving change and those who are stuck in a downward spiral. For Commercial Management to survive, it must itself grasp the fundamental of commercialism – and be ready to update itself.

 

One Comment
  1. Spencer permalink

    The problem is not the “legalization” of the process but a lack of staff who actually understand the trade off’s between warranty, liability, indemnity, relationship building, pricing, business requirements . . . . I have provided templates to juniors with EXPRESS instruciton the tempalte was only to be used as a framework for thier agreement – use the template for issue spotting and outlining what they needed, especailly the pricing structure. A month later the document was executed and they guy didn’t even change the names of the parties from the original agreement – it was 100% identical except for the contract tracking number!

    When negotiating several thousand contracts a year, legalization of the process may be the best many companies can hope for give the staffing resources avaialble.

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