Contract managers and commercial lawyers who spend their working lives immersed in the minutiae of written agreements are, on the face of it, unlikely allies for those who believe the business world would be better off with a bit more trust and a lot less legal jargon. And yet the need for better relationships was one of the key messages at the European conference of the International Association of Contract and Commercial Management (IACCM) in London last week.
The IACCM is unique among non-profit bodies of its kind in that it brings together both sales and procurement managers, along with in-house and external lawyers, to develop good practice in the contracting process. Its chairman, Tim Cowen, general counsel and commercial director of BT Global Services – the outsourcing arm of the UK’s biggest telecoms firm – set the tone for the conference in his opening keynote. Trust, he said, was “fundamental to any business relationship” and there wasn’t enough of it around.
But he went further, arguing that “to see them [relationships and contracts] as opposites isn’t crazy. If the relationship works, you don’t look at the contract.”
However, in practice there was often “a rigid adherence to rules, but an inability to properly apportion risk” in contracts, he said. Contracts also tended to contain too many sticks and not enough carrots, with customers focused on penalising failure rather than encouraging the right kind of behaviour from their suppliers.
Cowen was particularly critical of government purchasers. By imposing “unreasonable terms on suppliers”, he argued, they failed to get the best value for taxpayers’ money – supposedly their main responsibility. Suppliers responded to buyer attempts to transfer all risk – a state of affairs that he described as “utter stupidity” – by pricing their bids higher to allow for contingencies.
These sentiments were echoed by Peter Rowley, who holds the same job as Cowen at Fujitsu Services, another big supplier of IT services to the British government. The involvement of “an army of external advisers” in the procurement process meant longer cycles, an overly risk-averse approach, greater cost, higher levels of frustration and strained relationships before work had even begun, he said.
Trust and goodwill wasn’t aided by the fact that public-sector customers sometimes seemed unclear about what they wanted, particularly in large transformation projects, he said. Rowley cited the UK National Health Service’s flagship IT programme “Connecting for Health” as an example of a relationship that had gone badly wrong. In May, Fujitsu was axed from its 10-year, £896 million contract after the two parties were unable to agree on a renegotiation of terms.
Chris Mead, commercial director of QinetiQ, a British defence technology company, agreed that strong communication and relationships was the key to success in complex public-private partnership or private finance initiative projects. But he said that to get the relationship off to a good start it was important to establish upfront which party owned which risks and build these into the contract.
In a breakout session, Jean Kinney, associate director of purchases at Procter & Gamble, stressed that her company preferred doing business with long-term suppliers and therefore put “a huge amount of emphasis on SRM [supplier relationship management]”. Its approach was not about trying to deal with all potential risks in the contract; this was something that could be handled in parallel as part of the business relationship.
Five years ago, P&G had taken the decision to drastically simplify and standardise its contracts on a worldwide basis, she explained. The company now had 29 contract templates for everything it bought globally and had cut the typical length of a contract from 50 pages to just 15. The language used in these agreements had been made less technical, pre-approved clauses had been drawn up for buyers to use for certain types of purchases, and all the contracts were stored and managed centrally using specialist software.
The benefits of this system, which was now used by 1,700 buyers, included “a much easier” negotiation process, rebate alerts, and freeing up the time of the 10 FTE lawyers who supported purchasing to focus on more complex issues.
In a passionate and inspiring speech, the IACCM’s CEO, Tim Cummins, a Briton who is spearheading the association’s expansion outside the US, suggested that Europe was generally “more collaborative in its instincts” and better at managing risk, especially in service businesses.
Cummins argued that those involved in the contracting process on both sides needed to know when to “get out of the way” and let their colleagues in the business manage relationships. “If we battle to control, people don’t want us,” he said. “If we battle to empower, they love us.”
He added: “Getting a contract signed achieves very little. It is the beginning of the journey, not the end.”
