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Developing terms and conditions

August 1, 2013

For most organizations, the process of developing terms and conditions and deciding related policies is largely an internal activity. There may be some reference to industry norms, comparison with competitor standards, advice from outside counsel or influence from an external consultant. But mostly, contract terms just tend to evolve based upon discussion between internal stakeholders.

Recently an IACCM member approached me to seek help with developing a customer forum which they  titled “Achieving Value from Improved Contracting”. Intrigued by the data IACCM has produced on the costs of poor contracting (costs which negatively impact both customer and supplier), they decided that the best way to develop an improvement to standard terms might be through an open discussion rather than through individual negotiation and they asked whether I would act as moderator.

There were about 40 participants at the event, a mix of Procurement, Finance and Legal staff from some of their largest customers. The agenda covered a number of specific clauses as well as several contract-related themes. For example, one topic was ‘Payment terms and  Invoicing’, in which trends and impacts were discussed. This session included IACCM research into the standard approach at the participating companies – with data anonymity, of course. This offered delegates a different perspective; most had not realized the extent of the divergence in their own practices or considered how their term and condition demands can impact things like invoice accuracy.

Not surprisingly, the topic of risk allocation generated lively debate. The extent of IACCM data on this topic, together with evidence from a top consultancy, helped participants to grasp the benefits of a more nuanced approach to risk terms, based on what they are trying to achieve. This led to sessions in which delegates explored some of the terms that help cause or avoid value loss in contracts and a round-up presentation that sought opinions on potential new offerings – for example, greater use of digital technologies in contract formation and distribution, as well as the potential for performance or benefits-based contract models.

Before the event, there was some nervousness about bringing customers together in this forum. Would they start complaining or making adverse comparisons with competition? Might they ‘gang up’ either at the event or afterwards to push for new approaches? In the end, none of these fears were realized. Instead, the customers had a new appreciation of the impacts of term choices; they felt their voice was being heard; and overall, contract terms were suddenly no longer a taboo subject, but instead a recognized source of added value.

For the forum organizer, the benefits were many. They included invaluable market insight, a stronger customer relationship, future reductions in negotiation and contract cycle time, improved cooperation with sales and account management and an enhanced understanding by top management of the role that contracts can play in the business. Not surprisingly, plans for the next two forums are already under way.

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