As contracts are touched by everyone and owned by no one, there are differing motivations

We launched our new end-to-end contracts offering a little over six months ago, and in that time, I have met with clients, colleagues and partners around the world delivering the message, listening to their challenges and I would like to think solving a number of those.  Here are some of the things I learned in my most recent odyssey:

• World Commerce & Contracting can still throw a great event; 
• Despite treating my body like a temple over the last 25 years, I can run for two hours without dying; and 
• The Middle East is much more than just Dubai and this new city NEOM I keep hearing about. I've been to some amazing places that really care about contracts!

The last point was quite critical for me and exposed something about my very New York-influenced perception of return on investment when it comes to extracting value from better contracts, contracting or contract management. Now look, I’ve written enough reports, business cases and applications for funding to fill a small tanker truck.  And I know all the “soft” benefits vs the hard dollar ones and it always seemed – strangely – that it always came back to one thing.  To quote Jerry Maguire, “Show me the money!”  And lest you think I am going soft, this is still the case. But diving deeper, its very key to understand the drivers behind the person or persons who are asking for the money to put in a new CLM, outsource part of their function or seek advice and help because DORA is going to hit them in less than a year and most of their organisation thinks DORA is a plucky young girl with a backpack and penchant for adventures featuring her monkey friend. These drivers, these needs predate the business case and all the mechanics needed to get something approved in 2024. They are more visceral, simpler, perhaps easier to understand than graphs showing ROI over a five-year window. And because contracts are touched by everyone but owned by no one, what each of the stakeholders wants is often quite different.

Let’s now segue into more detail. Before we do, I’d like to be clear that I am purposefully over-simplifying the drivers. Yes – I know lawyers, procurement, sales, and c-suite are a complex lot and the nuances of what they really want can vary from situation to situation. But go with me on this. Promise it will make sense at the end. 

Legal: control

“We require unlimited liability for these carve-outs”, “We cannot accept the vendor having the right to terminate” and “We need a complete warranty around the IP provided under this contract” or similar phrases are sentences you have said, or you’ve heard a lawyer say during a negotiation. These are driven by some playbook, negotiation guide or standards which may be tied to some business reason, some examples where the company got burned by not having the clause or some odd grudge someone in the C-Suite has. True story – knew a CEO who refused arbitration clauses in all contracts just because he received a bad result once. Try explaining the logic of that to opposing counsel. 

But beyond the orchestrated compliance, the legal team is often the only group trying to keep the contract within the four-corners of whatever standard was given down from Mt. Olympus – whether based upon logical reasons, old habits, or arbitrary views. And it’s not just the other side they are fighting, but quite often sales or “the business” who have different drivers (see below) or needs around the contract. The legal team just wants the contract to fit in the box and is on the hook to explain if it doesn’t.  They want to control which template is used, which fall-back is approved and what the final version is. This is why some lawyers – not all – really feel uneasy about things like self-service, outsourcing, having someone else streamline a template or even automation in the contracting process. Even if standardisation or automation or playbooks force more conformity, there is a perceived loss of the control. “I just want to make sure we aren’t signing up for things we shouldn’t” or “sales will agree to anything and put us in danger,” are phrases I have heard. This isn’t coming from a bad place at all, but something to consider when launching that big transformation.

Procurement: cost

Raise your hand if you’ve ever been told or heard this line, “Ultimately we considered both solutions, and the final decision came down to cost.” I feel that is part of some initiation ritual when joining a procurement team. “Repeat after me: we are trying to get an apples-to-apples comparison. We need you to sharpen your pencils. We have a limited spend for this project.” I really do admire the consistency in the profession across organisations. I jest of course, but that’s procurement’s job. If a company decides they can only spend X, then someone has to make sure we don’t go X+10%. Just like the lawyers are trying to make the terms fit into the box, the procurement team is trying to make sure the financial goals are achieved. 

When we apply this to contracting and contract management, procurement is a great buyer because its simple and clear. How can we make this process more efficient and thus less expensive? How can I manage my vendors, so they don’t change order us to death? How do I ensure I have consistency in the rate cards my vendors are using? How do I make sure I can get out of this contract if we need to? These are all things that live in the contractual terms, but also the process. Do I need all these lawyers spending time on this activity or can I get to self-service, standardised templates and automation? There is a natural divide in the drivers of procurement and legal, but when the balance is right, the organisation really benefits. 

Sales: speed

“It’s March 30th! We need to get this signed before year-end!”, “Who cares about that piece, they agreed to the price. Can’t we just manage that after?”, “These are our standard terms, why can’t we just sign it?”, are all things you may have said or heard when working in or with sales. If legal and procurement are about making contracts or cost fit into their respective boxes, sales is about just getting the contract signed so we can hit our target. And that target means much more to the individual salesperson than others think. When you are working in a contracting team, you see hundreds of contracts per year and you try and get them done as fast as you can, but its hard and truthfully, you are not being rewarded by the number of contracts you process. Whereas in sales – that contract closing by a particular date (or at all) drives your compensation, what your summer holiday will be, what Christmas gifts you’ll get your kids, how you can justify all the travel to your spouse. So yeah – they are going to chase and hound you to get this contract approved and signed. How fast a deal can get signed from identification is a key stat in sales, so of course when it comes to contracting, speed is king. Like procurement and legal, when you get the balance right here of speed and control, the organisation benefits and contracting gets better.

Business: value

Purposefully left this one for last as it has many nuances to it. Ultimately and simply, the business needs the contracts to work. They need to be able to get the resources, goods, tech, etc. in place to then run whatever they are building, selling, or doing. But even more interesting is the fluidity of and subjectivity of the value depending upon region, sector, maturity, etc. For instance – again to over generalise – it has become quite apparent to me that organisations in the Middle East are as about risk – reputational or otherwise – in their contract management as they are about spend. Of course, they want to prudently spend their money, but with such a rapid pace, there is a real palpable concern about getting a hold of the contracts and contracting so that nothing is “missed”, or which could affect project timelines or goals.  Conversely, many Western companies are looking at how they get a handle on their contracts given all the regulatory, geo-political and other states of constant change we seem to be in currently.

But I go back to the idea that value is really about the contract “working” and allowing the business to run without distraction and ideally run even more smoothly so that changes can be dealt with in a sensible way. The contract must serve the business relationship and not constrict it. And this requires a balance really of the control, cost and speed elements mentioned above. 

To summarise, as contracts and contracting really are one of those unique transversals in a company, it is normal that everyone is going to have their own opinion about what is most important. Focusing on any one thing too much will lead to issues and really a loss of value. But when all concerns are in balance – then you are on to something.

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