Skip to content

Good contracting is about thinking the opposite

February 16, 2018

Society as a whole is becoming increasingly impatient with complexity. We expect things to be available on demand, easy to access and understand. While we appreciate that many things are complicated, we expect that experts will make them simple and consumable.

These principles lie at the heart of business operations and the emerging digital world. Contracts and the contracting process will not be immune. Every day, I observe growing pressure for change. Here are a few examples:

  • challenging tradtional power-based theories: throughout society, we are seeing rejection of behaviors based on power. In the world of contracting, it is generally alive and well. Big corporates use their power to impose unbalanced and in many cases unfair contract terms on smaller businesses. I am starting to see a push-back, in some cases led by government, but also through small industry associations. The days of these abusive practices are numbered – which is actually great news for everyone, because those unbalanced terms brought no measurable economic benefit.
  • focus on the terms that matter: I love a recent quote from McKinsey, the consultants: “It’s scary for most organizations to let go. We have built organizations that are hierarchical, inspired from the military.…” That is such an accurate depiction of much of today’s contract negotiation, where experienced practitioners know that far too much time is spent battling over the wrong terms, at the expense of structuring an effective business deal. That is starting to change. General Counsel in particular are starting to challenge and push their organizations to think and behave differently.
  • ‘we are not involved early enough’: for years, contracts and legal staff have bemoaned the fact that they are often involved too late, that their ability to bring value is undermined by the fact that key commercial aspects of the deal have already been commited before they are consulted. They were right to make that complaint – too often, value was lost and deals did suffer. But now, we must turn that thinking on its head – the time has come to work out how to esnure that in most cases, we dont need to be involved at all. How do we use technology to deliver a virtual service? How do we shift our knowledge to the front end of the process to support others in making the right decisions, the right contracting model and the right terms?
  • successful contracts provide structure: this is the part I find exciting because it involves seeing the contract in a new way. We all know that contracts are a record of rights and obligations and that shouldn’t change. But historically they have not really been effective business instruments because they have been rigid,hard to understand and seen by many as instruments that have relevance only when things go wrong. But in an agile world, that thinking must change. We need to structure the contract in a way that supports achieving goals and objectives. And we need contracts and contracting processes that are designed to facilitate change, to be adaptive. A few key principles (and core to this adaptability) are: 1) put the customer first – make the distance between the customer and the contract as short as possible; 2) put people before process – contract performance ultimately depends on collaborative interaction, often across a multitude of stakeholders, so design contracts as interlocking instruments that support and motivate the right behaviors; 3) welcome change – something that is traditional anathema to many procurement, contracts or legal staff, yet which is fundamental to achieving the right outcome; and 4) empower the team – they are at the front end, so provide them with the knowledge they need to make good decisions.

Clearly, these are not changes that occur overnight and their speed will vary. But in every case, the momentum is there – and anyone who views him or herself as an expert in the world of contracting needs to be working on how to respond to these trends.

One Comment
  1. I write contracts that are easy to read, easy to understand, easy to sign. This was necessary as the budget of the legal department was never sufficient. This approach meant that not only the customers could understand the agreement, so could management and so could the sales team. And, there was no loss of legal protection. I met with the sales team every two weeks to discuss how to overcome obstacles. Telephone calls were used for very specific contracts which required immediate input. After about six months, the sales team understood why certain things were written in the manner in which they were. After approximately seven sales on any contract, no additional negotiation was required. The sales team loved it as it increased the velocity of closed transactions and increased the money in their compensation checks. The process is the process; but in constructing a contract, it is always necessary to follow the operating principle of “think like the customer.”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: