I was quite excited about the ‘street talk’ regarding the about-to-be-released IACCM Contracting Principles framework. The level of expertise on the IACCM Steering Committee and Advisory Board appears unparalleled. So, I thought, at last, an industry body has taken the initiative to produce a JCT-type (Joint Contracts Tribunal) set of principles (usually for the building/contracting sector) which could be applied on a wider basis. Not that I am a fan of all of the JCT principles, but they are a step in a more optimised direction than what can usually end up as a free-for-all-bun-fight in contract negotiations.
Who are the IACCM?
The International Association for Contract & Commercial Management (IACCM) has as its tagline that its purpose is “Enabling organisations and professionals to achieve world-class standards in their trading relationships”. Its 55,000 members are spread across 179 countries and a broad spectrum of industries from Oil and Gas to Technology, Healthcare, Aerospace, Construction, Public Sector and more. Their membership is dominated by professionals through to management in the contract and commercial management and procurement fields. And, because it aims to help organisations ‘achieve world-class standards in their contracting and relationship management process and skills’, you can understand why I had such high hopes for this framework.
IACCM Contract Framework – a sort of missed opportunity, I think…
Now, I’ve read the IACCM Contracting Principles framework, my enthusiasm is dampened. Don’t get me wrong – simply having key contractual principles that have been discussed on an industry-wide basis should help to promote the reduction of conflict during contract terms negotiation of how I would phrase ‘The Boilerplate’ content. This can only be a good thing. The principles are intended to speed up the negotiation process and limit the downside on a fair and equitable basis for both supplier and client. For the purposes of contractual and legal compliance, I am sure these principles will help to reduce some of the pain in finalising compliance-based contract negotiations.
But these principles, in my view, miss the absolute core fundamental issue in procurement, contracting and supplier/client relationship management strategy – that is to provide a contractual framework to drive the success of the project/relationship, so that both client and supplier achieve the business outcomes and objectives they both want.
Key Issues the IACCM Framework Does Address
If the IACCM Contracting Framework doesn’t address this core issue of driving operational project and relationship success, then what does it do?
It primarily focuses on limiting the downside and reducing the fallout when the project and/or relationship is already going off track. In fairness, it does deal with key issues when project and relationship misalignment arises, such as:
- Compliance with Laws
- Customer Audit of Suppliers
- Data Security and Privacy
- Force Majeure
- Indemnification of Third-Party Claims
- Intellectual Property Rights and Indemnification for Third Party IP Claims
- Liability Caps and Exclusions from Liability
- Safeguarding Confidential Information
- SLA Remedies
- Suspension Rights
- Termination Assistance.
It’s often less about the written contract and more about the requirements and relationship…
So, here is the rub: the cause of contractual disputes is rarely the written contract terms themselves. More often than not, most issues arise when a client believes the supplier hasn’t delivered the service/solution it was tasked to deliver, or it has fallen short of achieving the outcomes expected of it. As a result, the client refuses to pay some or all of what the supplier perceives it is owed.
Unfortunately, there is nothing in the IACCM Contractual Principles that provides the foundations for driving ‘good’ or ‘enabling’ behaviours between all parties to ensure that the solution delivered meets the client’s expectations in the first place. Why aren’t the principles focused on successful outcomes rather than limiting the downside of failure?
Again, don’t get me wrong – it’s in everyone’s interests to limit the downsides of failure and reduce the costs of contractual arguments. However, what the IACCM has produced begs the question of whether the participants in designing these principles have been beholden to the legal advisors on the respective committees and boards. How many of the legal forces on the those teams have had coalface experience of managing major and complex solutions through to successful completion, achieving the expected outcomes of both parties, on time and on budget? Surely we should all be looking to help clients and suppliers alike to create contract terms that encourage the success of these major projects.
As those on the IACCM Steering Committee and Advisory Boards certainly seem to have all the background experience needed to create such a framework, why do the IACCM Contracting Principles seem to miss this vital concept?
Our Recommendations for the next release of the IACCM Contracting Principles Document
The key purpose/foundation and focus of the written contract terms in any major complex service/solution delivery relationship – whether it is an outsourcing, PFI, large IT integration or similar project – is to assure that both the client and supplier work collaboratively towards common understood goals, achieve what they have agreed between them, to deliver when they expect it and at the agreed pricing model.
In that respect, I would have expected ‘limiting the downside’ to be of secondary focus in the IACCM Contracting Principles. The primary focus being on contracting principles that cover:
- Clarity over what will change in the client organisation upon successful implementation Contract terms that outline a process to assure that both client and supplier have much better certainty and clarity of what will change in the client’s organisation, once the solution has been delivered. In other words, what specific benefits is the client expected to achieve, what business/organisational hurdles can it overcome and by when, as a result of it investing squillions in the supplier’s service/solution and resources?
- Clear business objectives
Contract terms that help to articulate/drive/encourage a process of supplier due diligence that aligns to the business objectives the client is trying to achieve.
- Assisting the supplier to give more comprehensive advice to the client
Contract terms that outline an appropriate mechanism for detailed supplier due diligence (the basis being the specialist supplier is a perceived ‘expert’ in its field) on the client’s expectations to assess to what degree those expectations are achievable or not, within the budget, resourcing and timescales the client has available. The mechanism should ideally split the contractual structure into two parts: the first being an ‘advisory only’ contract to focus the process prior to a final commitment from either side for the solution itself. By definition, part of the output from this first advisory-only exercise should include the appropriate roles and responsibilities for both supplier and client, along with perceived co-dependencies on expertise.
- Encouraging strong client and supplier collaboration to innovate and solve business challenges
Contract terms that support a process to outline how ‘good behaviours’ (proactive governance) can be implemented to encourage collaborative working practices. These working practices should result in innovation and honest conversations (transparency) to drive maximum value for money for the client and ongoing revenues for the supplier through the solution implementation and its ongoing optimisation.
- Evidencing (not just hoping for) deep collaboration between client and supplier
Contract terms that articulate the process of designing and operating the Key Performance Indicators (KPIs) aligned to the behaviours you want from both the supplier and the client. Structured in the right way, these KPIs will inform whether both the supplier and the client are ‘behaving’ in a collaborative and innovative manner. Ongoing monitoring of these KPIs will help to inform both supplier and client of what is already working really well between them and where small adjustments in behaviours will help to improve matters.
- Reshaping the agreement as expectations change
Contract terms that reflect ‘current reality’ are very important. On large projects, many foundational factors change because the projects can take several years from inception to completion. Over that time, organisations rarely stand still, and it would be even more rare for the specific objectives that everyone agreed they were working to at the outset of the project to survive more than 6 to 12 months, due to economic and political factors. A contractual process for reshaping and taking account of current factors impacting the outcome of the project should be inherent within the contract terms. And this is not about ‘change variation or change control’. It is a specific contractual process to encourage the reshaping of expectations to keep the project, client and supplier relationship aligned, on an ongoing basis, to the outcomes the organisation needs.
So while the IACCM Contractual Principles appear to reflect ‘Boilerplate’ contract terms and seek to help reduce the negotiation time of those specific terms, there is nothing in this document that takes into account the truly key foundations needed to help both client and supplier really drive success between them.
Encouraging behaviours to avoid mistakes and reduce the impact of a failing project is quite some way away from encouraging really strong and collaborative behaviours that increase the relationship’s chances of achieving expected outcomes.
In this respect, reverse engineering the above points as a primary focus into any contract terms, to reflect the needs of the client and supplier organisations, would be advised as a priority.
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