Contracts – another victim of COVID-19

While it would be premature to announce the demise of contracts, there is no question that the pandemic revealed their unhealthy state. In practical terms, they served almost no purpose in dealing with the issues created by COVID-19.

Join World Commerce & Contracting CEO Sally Guyer in conversation with Ned Coleman, Executive Director of Contracts at Accenture, as they discuss the impact of the pandemic on contracts and contracting practices – register here.

Most business contracts attempt to create certainty. They are designed to impose fixed obligations and establish consequences for failure. Negotiations repetitively fixate on risk allocation – liabilities, indemnities, performance undertakings. Endless hours – and large amounts of money – are spent in agreeing terms which proved irrelevant in dealing with the pandemic.

As market uncertainties continue and increased volatility and variability are established as ‘normal’, what is the future of contracts? Do we find ways to make them more agile and adaptive? Does it mean shorter periods of commitment, or perhaps greater focus on governance terms and principles? It is clear that contracts will not disappear – there are many reasons why we need them. But they must change; we must step back and ask ourselves once more ‘what is the purpose of contracts?’ We must recognize that the depth of purpose varies so there is no ‘one size fits all’ response – for example, a short term commodity purchase is not the same as a long-term service delivery.

Organizations are already pondering and designing for the future – reconsidering contract terms and commercial models; re-thinking risk analysis and scoring; moving away from rigid templates towards AI-powered clause libraries.

In recent times, the standardization of contracting practices has operated as a constraint on business and negotiations have become a battle over the relative power of the parties to impose their preferred terms. That must change. We need contracts, but they must be practical, intelligent and sources of mutual value. 2021 will be a year when contracting recovers its health.

Join World Commerce & Contracting CEO Sally Guyer in conversation with Ned Coleman, Executive Director of Contracts at Accenture, as they discuss the impact of the pandemic on contracts and contracting practices – register here.