Why you should care
We have all dealt with contracts at some point in our lives. If you are a company owner, a president, a sales or procurement director, an attorney or a contractor, your exposure to contracts may be in the thousands. How do you know whether your contractual arrangements are an effective vehicle to manage trade relationships in your business? Many are astonished to learn that, on average, poor contract management causes a loss equivalent to 9% of a company’s revenue. (1)
Participation in global markets come with increased levels of complexity, volatility, a variety of legal frameworks to master, and thus, greater risks. To be effective, contracts must clearly address the desired outcomes, how performance will be assessed, how changes will be managed, the risks, and the reward criteria. Furthermore, contracts should promote the behaviors necessary to ensure the success of the relationship, as defined by the parties that agreed to voluntarily enter a legally binding arrangement.
The contract lifecycle
Companies that recognize their opportunity to improve the bottom line through better contract management start out by educating themselves about the contract lifecycle. The reality is that different people from different functions and geographies may play a role in each of the phases of a contract. Excellent communication amongst all collaborators within a company, as well as with the external counterparts is therefore of paramount importance, as is integrated oversight of the contracting function.
The contract lifecycle model utilized by the International Association for Contract and Commercial Management (IACCM) consists of five phases that are defined below:
INITIATE > BID > DEVELOP > NEGOTIATE > MANAGE
The contract management needs of small companies
Small companies tend to have simpler organizational structures with individuals playing different functional roles. This may enable integration across the contracting phases more naturally. On the other hand, oversimplification of the contracting framework to keep workloads under balance may impair full attainment of the benefits from commercial relationships, both on the buying and the selling sides.
3P Brava, Inc. is conducting research to better understand the relevance of contract and commercial management of small manufacturing companies. You are invited to participate by answering a confidential survey via this link: https://goo.gl/forms/9crg2VKq1GSs50FX2. The survey will remain open until May 15, 2017. The results will be subsequently published in the WIRE-Net and 3pbrava.com blogs.
(1) International Association for Contract and Commercial Management (IACCM)