commercial agility & creativity through contract...

The Future of Contracting

Commercial Agility & Creativity Through Contract Simplification

©2016 IACCM

“The invention of trade represents one of the very few moments in evolution when homo

sapiens stumbled on some competitive ecological advantage that was truly unique”

(Matt Ridley, ‘Genome’)

©2016 IACCM

“Specialized business and trade lie at the heart of human advances”

(Richard Koch, ‘The Science of Success’)

©2016 IACCM

“With each advance in human communication, the complexity of the trading

relationships we form increases”

(Nicholas Wade, ‘Before the Dawn’)

©2016 IACCM

Characteristics of trading relationships today

• ‘The virtual enterprise’ – communicating within interdependent supply networks

• Longer term relationships - an increasing focus on outputs and outcomes

• Terms & Conditions - designed to drive behaviour and define relationships

• Collaboration - necessary to manage risk and ensure sustainability

• Communications - designed for users and to support value delivery

• Data - a source of business intelligence and proactive change

… traditional contracting based on

classical legal theory simply does not support

these characteristics

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Audit Office condemns shortfall in commercial skills(The Times, November 2010)

The problem is visible and significant

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Gen Y Missing Commercial Skills(Forbes, February 2015)

2And it isn’t going away…

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Lack of clarity

on scope and

goals

1

Result: Cause of

claims/disputes

7Contracts

difficult to use

or understand

Result: Users see contract

as irrelevant to business

needs

9Limited use of

contract

technology

Result: Inefficiency and loss

of quality in performance

and analysis

Average value

erosion 9.2%

Legal/contract

team not

involved early

enough

2

Result: Wrong form of

contract & extended

lead time

4Protracted

negotiations

Result: Competitive

exposure & delayed

revenues

Result: Performance

management dominated by

blame/fault

6Contracts lack

flexibility.

Insufficient focus

on governance

8Poor handover

from deal team to

implementation

team

Result: commitment &

obligations missed &

misunderstood

10Poor post

award

processes and

governance

Result: Repetitive issues

and errors causing value

loss

3Failure to

engage

stakeholders

Result: Misaligned

interests and future

opposition

Negotiations focus

on the wrong terms

and risks

Result: Loss of

economic benefit;

contract a weapon

5

10 Pitfalls of current contracting and commercial practice

Copyright IACCM 2015

©2016 IACCM

Contracts must support relationships – not just transactions

Much more transactional; 9.4%

Somewhat more transactional; 16.2%

No real change from today; 15.0%

Somewhat more relationship based;

37.6%

Much more relationship based;

21.8%

IACCM Future of Contracting study 2015/16

©2016 IACCM

How do you think approaches to contracting will change?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Performance oroutcome-based

contracting

Evaluation of thebalance betweenrisk and reward

Collaborativeplanning andnegotiation

Focus onagility/flexibility(including Agile

contracts)

Payment byresults

Less About the same More

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What aspects of contracting will change over the next few years?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Will Common law maintain its dominance as theframework for international contracts?

Will there be more international and industrystandards?

Will there be a focus on plain language (less legalese)and simpler design ?

Will there be greater use of visual techniques toimprove understanding (i.e. pictures, graphs, flow

charts)?

Will contracts be digitally created?

Yes No

©2016 IACCM

Relative to today, how important will these issues be? (on a scale 1-5, 1 less impact, 5 more impact)

3.78

3.84

3.91 3.92 3.933.96

3.99 4.00

4.044.07

3.60

3.65

3.70

3.75

3.80

3.85

3.90

3.95

4.00

4.05

4.10

©2016 IACCM

Integrity, collaboration and agility are key in this environment

Contracting for outcomes

©2016 IACCM

Rethinking the purpose of a contract

Allocate risks

Support communications

Direct operations

Legal weapon

Economic instrument

Drive behaviours

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Will there be a shift in the emphasis between contracts as a legal instrument versus contracts as an economic, operational or communication instrument?

65.6%

34.4%

61.3%

38.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Yes No

2015 2011

©2016 IACCM

Contract Design: Why have clear contracts?

• It demonstrates a commitment to ease of doing business

• It reduces cycle time in reaching agreement

• It improves compliance and supports collaboration

• It reduces disputes caused by lack of clarity and understanding

• It reduces business risks – for example: speeding the implementation process and reducing the probability that contracts are either ignored or misinterpreted

• It enhances reputation and demonstrates integrity

• Or put another way, how much can you trust an organization that deliberately makes its terms of business obscure?

©2016 IACCM

Comparative Analysis

Overall Rank of

Agreements (1

highest)

3 1 2

Comparative

Length

Reviewed 9 pages (GTC and order form

(OF)). Total length of agreement unknown

as no less than 6 other documents form the

agreement.

Reviewed 3 pages (GTC) only. Have not

reviewed the Transactional Documents (TD)

referenced, as these were not available.

Reviewed 13 pages of the

framework customer agreement.

Have not had sight of, or reviewed,

the online structure or other

documents referred, and form part of

the agreement, of which there are a

number.

Number of cross

referenced

documents

Order Form plus no less than 7 documents,

or external websites.

GTC plus 3 documents: TD and

attachments (defined in the agreement as

order form and service levels) and the NDA

is a separate document.

Customer Agreement Framework

plus no less than 7 documents incl:

SLA, Service Terms, AUP and other

policies, trademark use guidelines,

“Apache Software License” and

“Service Offerings License” as well

as web links.

Single or Multiple

offering

Dual offering: cloud services and associated

consultancy services. Multiple orders for

cloud services may be used against the

same terms.

Single: cloud service only, but multiple in

number of “cloud services”

Generic framework agreement

Flesch Test

(Flesch Target:

50-60; a high

score is good).

Grade 10 is good.

Poor. Flesch 26 Grade 13.9 Flesch 37.3 Grade: 12.2 Flesch 46.9 Grade 11.2

©2016 IACCM

Raising fundamental questions over the way future terms and contracts will be delivered

Just the beginning of the revolution

AI, block chain and other disruptive technologies enable a wave of commercial innovation

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