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Are your executives ready to sign-off on your contracts?

August 5, 2014

As buyers, we probably all wish that suppliers were more accountable for their sales practices and commitments. Whether it is the promises made when we buy a new car or the cost and timing of a house extension, most of us have suffered from the frustration of dealing with sales people who seem somewhat untroubled by truth or accuracy.

In the world of business, buyers often try to drive performance through onerous risk terms, ranging from liabilities, to liquidated damages, to rights of termination. But in general, this approach does not work well. So now we appear to be moving to a new era of control, requiring suppliers to sign up to even more specific undertakings of integrity.

As in the past, Government seems to be the driver of change. Exasperated by repeated performance exposures, several Governments are exploring the idea of forcing senior management in key suppliers to confirm that their internal processes have included thorough validation of contract commitments and their capability to perform.

In theory, this capability assurance is a role that should be performed by Contract or Commercial Managers. In practice, it often is not. Commercial staff may be involved too late; they may lack the skills or authority to mount effective challenge; their concerns are ignored or overridden. But soon that may be changing, with the creation of an integrated ‘Capability Assessment function’. Quite where that leaves the contracts or commercial manager remains to be seen. Some may be at the forefront, identifying and leading the necessary changes within the business. Others may simply be swept aside or absorbed by this new assessment and sign-off group.

The world is changing and the days of the commission-based sales organization are numbered. Business integrity will continue to advance and steadily will become a pre-requisite for winning significant contracts.

2 Comments
  1. Eugene P. Grace permalink

    Seems like you are referencing some form of Sarbanes-Oxley (SOX) type of certification in the private sector. Not sure what that buys you. In the SOX example, you are making a representation to the government with the coercive power of the state behind it. In the private sector context, I don’t know how much you are achieving. It seems like an additional layer of bureaucracy that may be of little effect. The same could be achieved by requiring the seller to represent that it has the capability to perform the services in the manner, and in accordance with the standards, established in the contract. You could even include a space for seller to specifically initial that representation. That type of representation could be included in the contract schedule for description of services. Don’t be surprised if seller wants a representation that buyer has the ability to pay for the services with a similar protocol of initialing that representation. I advise people that the contract is an important document, but I question them as to whether they will litigate over it. There is a certain residue of uncertainty even with a written contract that needs to be bridged with an appropriate level of pre-contract due diligence. But there is always a final element of uncertainty which is only surmounted with an element of trust. There will be cases when you don’t trust the counterparty. Your first reaction should be to walk away. If that is not possible, then you need to be extremely careful that you have clearly established the contractual requirements and the fee schedule should be constructed to provide an incentive for the counterparty to perform in accordance with the contract.

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