Weaknesses in Contract Management Exposed
IACCM and its members have recently undertaken ground-breaking work in establishing the returns that can be achieved from improved contract management. Gone are the days when we have to rest our case on risk avoidance; the data clearly shows the scale of the impact on the bottom line – the real costs and revenue losses that occur when you don’t adequately manage your contracting process.
For organizations that are leading the way on raising contracting competence, clear targets are emerging – often running to benefits of several hundred million dollars. How they get there is quite simple. They start to look at contracts as a portfolio and identify the frequent sources of value leakage, the extent of the financial impact and then they take steps to plug the holes.
Since this work is still in process of gaining broad industry recognition, it is always helpful to discover other sources of data that confirm the original IACCM research. One of those is a recent report from EC Harris, a global consultancy in the building and construction sector. Their Contract Solutions and Construction Claims team has published the 3rd Annual Report on construction disputes and, I quote :
“All of the top five causes of construction dispute revolve around a mistake or failure, which makes them all avoidable to varying degrees. More specifically it is interesting to note that the causes are all directly related to contract administration”.
There are many features in common with IACCM research findings, though also some interesting industry or regional variations. I will expand on these in future blogs, as well as webinars in which we can discuss these findings and ways they can be avoided.
The real point is that research should be empowering contracts and legal groups to shift discussion in their business. It reveals quite clearly that today’s contracting practices are not an effective way to manage risk – they are actually a major source of risk.