Commitment Matters

If you are a professional in Contract & Commercial Management, committed to achieving the best possible outcomes from negotiations with all your trading relationships, then ‘Commitment Matters’ is the perfect source of regular articles and posts dedicated to helping you achieve that goal.

How the wrong contracts destroy value

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Feb 10, 2014 1:25:06 PM

I have been reading an excellent research paper (see reference below) based on a study of the US automotive industry and in particular how General Motors went from a dominant market position to bankruptcy in less than 30 years.

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Topics: contract /commercial management, procurement, sourcing, relationship management, international

Can suppliers be trusted?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jan 30, 2014 1:52:21 AM

The recent comments by UK Government CPO Bill Crothers reflect sentiments felt by many customers towards their suppliers - that they are exploitative and cannot be trusted.

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Topics: negotiation, contract /commercial management, procurement, sourcing, legal, organization & people

Procurement leadership is fast catching up with yesterday

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jan 15, 2014 9:50:47 PM

According to the Procurement Leaders' 2014 talent survey, the number one skill gap for procurement professionals is commercial awareness.

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Topics: procurement, sourcing, commercial management, organization & people

Contracting as a source of business integrity

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Jan 8, 2014 2:08:15 AM

Expectations of business integrity are increasing. Society is becoming more aware of the costs associated with dishonest or immoral behavior. This goes beyond overt corruption; it relates to the much broader issues of honesty and sustainability in the commitments we make.

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Topics: negotiation, contract /commercial management, procurement, sourcing, risk management, legal, organization & people

I'll tell you what I want ....

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Dec 30, 2013 11:26:12 PM

Negotiation can be a frustrating process, a game of discovery. Many suppliers feel that gathering true customer requirements is a bit like playing hide and seek. But what is it that suppliers could do better?

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Topics: negotiation, contract /commercial management, procurement, sourcing

Designing for manageability

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Dec 16, 2013 9:50:47 PM

Last week I commented on a series of recent public sector contract failures (see Government Procurement in a Mess).

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Topics: contract /commercial management, procurement, sourcing, risk management, organization & people

Government Procurement in a mess ... but is it just the tip of the iceberg?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Dec 11, 2013 8:58:39 PM

A series of recent incidents from around the world (or at least, the English-speaking world) must lead anyone to ask 'what is wrong with public sector procurement?'

Is it just a coincidence that major problems seem to be popping up on a regular basis (e.g, in recent weeks, Obamacare, Queensland outsourcing, UK justice contracts and now the abandonment of outsourcing defense procurement), or is there a pattern that would imply something more fundamental is wrong?

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Topics: contract /commercial management, procurement, sourcing, relationship management, risk management, organization & people, supply chain management

Do buyers get what they deserve?

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Dec 2, 2013 12:44:35 AM

Last week I wrote about the growing debate over supplier integrity versus buyer competence - and the suggestion that if a buyer lacks contract management skills, they should not engage in complex contracting. (See original post here).

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Topics: contract /commercial management, procurement, sourcing, relationship management, risk management, organization & people

The health of competition

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Nov 26, 2013 8:36:37 PM

Remember "The World Is Flat", the best-seller by Tom Friedman that hailed a future of open competition and innovation driven by a global networked economy?

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Topics: procurement, sourcing, supply chain management

Pressure grows on Contract Management & Outsourcing

Posted by Tim Cummins, President of IACCM, Professor, Leeds University School of Law; Chair, International Commercial & Contract Management

Nov 24, 2013 12:37:27 PM

The UK's National Audit Office has issued a damning report on the state of contract management in the outsourcing industry, questioning the integrity of suppliers and suggesting a lack of competence in Government departments to manage such relationships.

Given the findings and observations of the NAO and recent investigations by the UK Public Accounts committee, what steps should suppliers and customers be taking to raise the quality and integrity of contract performance? It is clear that obligations and commitments need more rigorous analysis, both in terms of capability to deliver and in actual delivery. But is this a shared responsibility, or does the burden fall disproportionately on one party? And within this, where does organizational and operational responsibility for 'due diligence' lie; for example, should highly trained contract managers be more directly responsible for signing off against commitments and the oversight of internal integrity? Given their operational role, might this be more effective than oversight by risk or audit functions, which tend to report after the fact?

It would be a mistake to see this as a problem that is peculiar to the UK. Repeated issues in the US (where there is supposed contract management rigor) suggest similar challenges. And the experience of many private sector firms has in truth not been much different.

Until these issues are resolved, publications such as the Financial Times suggest that organizations should not enter into complex contracts where they do not have the capabilities for their management. But is it management that is the problem, or is it the selection criteria? In other words, an organization that lacks contract management competence probably does not understand its value and therefore does not look for this quality in its suppliers. Indeed, suppliers with strong contract management discipline are quite likely to lose a competitive tender because a) they will be more conservative in the commitments they make and b) they are likely to bid a higher price. The reasons for this are that a strong contracts or commercial function acts as a constraint on the natural over-optimism of Sales and senior management; and such organizations generally do not follow a model of 'bid low and make up margin later'. This latter attitude, induced by price-based supplier selection, leads to low levels of supplier integrity, which include aggressive pursuit of claims and a readiness to deliberately over-charge.

But does this mean that for complex relationships to work, both parties must have equal competence in contract management? I think the answer is no; but the weaker party must certainly appreciate their potential exposure and select and manage their trading partners accordingly. Processes that are driven by a conjunction of price-based procurement and risk-allocating contracts is clearly not adequate - and may even drive the opportunistic behavior that is evident in some suppliers.

Tomorrow, I will suggest some mechanisms that might address these problems.

 

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Topics: contract /commercial management, procurement, sourcing, relationship management, organization & people

About the Author


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Tim Cummins

In his role as President of IACCM, Tim works with leading corporations, public and academic bodies, supporting executive awareness and understanding of the role that procurement, contracting and relationship management increasingly play in 21st century business performance and public policy.
 

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Commitment Matters is the personal blog of Tim Cummins, the Founder and CEO of IACCM. If you are a committed contracting professional and want to develop your skills and network, take a look at what IACCM has to offer.
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