As the World Commerce and Contracting’s Most Negotiated Terms 2020 [available to members] report states
contracts are the lifeblood of [your] business… define how [your] organization operates, creating critical links with [your] suppliers and customers… Negotiations should focus on creating a mutually agreed framework that informs, guides and is able to withstand the challenges that lie ahead.
Overcoming the contract challenges
Simpler, clearer contracts can help you to withstand the challenges ahead and overcome some or all of these existing challenges:
- Your procurement team don’t read or understand, and cannot adapt, or easily negotiate your contracts
- Your staff, suppliers and customers cannot skim read them to find the key points or processes they need
- No-one can use your contracts effectively
- You spend too long negotiating your contracts (slow deal velocity)
- You can’t easily contract with SMEs, innovators or start-ups due to contractual complexity
- You have no tools in your contracts to minimise friction, claims and disputes
- Your contracts focus on legal enforcement despite the miniscule number of serious disputes.
If you want to know more about contract simplification, read Stefania’s views. If you want to know why simplification should come before a contract lifecycle management strategy, read Syke’s views.
Choosing a contract strategy
Your strategy should reflect why you use contracts. You need to think about the role of contracts in your business:
- Are they primarily for legal enforcement or supplier/project management?
- What should the contract terms help you manage: risks, expectations, change processes, governance?
- Are they part of your digital strategy – can you gather useful data to drive innovation, improvements, profit?
- Do they match your commercial strategy and help you achieve your goals?
- Do they create barriers to competition, value, innovation or defining success?
- How do they help you meet targets relating to eg performance or wider issues such as globalisation, decentralisation, carbon zero, or social value?
Your strategy should be deliberate, not based on hope, and simple.
What should you do?
The purpose of your contract strategy is to ensure your contracts meet the wider needs of your business. You can also define the types of contracts you need – a limited choice and simpler contracts can help minimise transaction costs.
What would you really like your contracts to do for your business?