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Scope & Goals Remain A Challenge

April 12, 2016

Across industry as a whole, lack of clarity in scope and goals is a common problem – it is in fact the first issue highlighted in IACCM’s ‘top ten pitfalls in contracting’ study.

Over half those who responded to a recent IACCM survey estimated that disagreement over scope and goals is an issue affecting more than 20% of their contracts. For those with a lower incidence, it tends to be their higher value agreements that are affected. Overall, the data indicates that around 30% of contracts suffer from levels of disagreement that result in significant concessions, or lead to a claim or dispute. While the financial impact varies substantially by industry and by organization, on average it is estimated to cost between 0.5% and 6% of annual revenue.[1]

In some organizations, this percentage is much higher – indeed, approximately one in eight encounter such disagreements as a norm, affecting more than 60% of their contracts. These high-contention environments are more likely to arise in the telecommunications, outsourcing and engineering and construction sectors. However, they also vary by type of agreement – for example, on capital projects, bespoke software or IT systems where precise outcomes or requirements may be hard to define or volatile to manage.

While this data indicates that there is major room for improvement, the good news is that the incidence of such disagreements has reduced by 8% since our last research on this topic, conducted in 2012. This reduction reflects a growing focus on contract management as a business discipline and indicates that concerted action can deliver rapid benefits.

The full IACCM report – including leading approaches to reduce the incidence of problems – is available to members of the association in the member library. There is also an associated webinar recording that features highlights from the report and a live Q&A session.

[1] This calculation is based on reported concessions (typically by suppliers) and price or charge increases accepted by customers without changes to their original understanding of scope or goals. It also includes identifiable charges associated with a formal claim or dispute arising from disagreements over scope and goals. It does not include additional costs arising from a full renegotiation, since a change of this nature implies that the original scope and goals were under-costed and that the revised price is therefore a correction, rather than an avoidable cost.

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