The latest Most Negotiated Terms report from World Commerce & Contracting shows that businesses are still contracting like it’s 1999.
Consider this scenario: A sales leader reports to her CEO that pipeline is looking great—the company is the vendor of choice at all the accounts that need to come in that quarter, and all that’s left is for the contract to get signed. Then quarter-end hits and the contracts aren’t signed—in other words, the leader misses her target.
What happened? The contract got tied up in negotiations, with the legal departments going back and forth on what seem like technicalities.
This is not a hypothetical—it’s an actual story shared with World Commerce & Contracting(WorldCC) for their latest Most Negotiated Terms report.
“I can resolve questions over the business or technical terms fast and predictably,” the sales leader shared about her sales contracts. “But when it comes to the legal and risk topics, I have no control. Time after time, my sales revenue forecasts are derailed because of the redlining…. Yet ultimately, it is me who is held accountable.”
Contracting like it’s 1999
The new report from WorldCC raises serious questions about how companies approach contract negotiations. WorldCC has been surveying members for 20 years about where they spend their negotiation capital. Where the authors expected to see massive changes spurred by globalization, digitization, and other trends, in many ways little has changed. When it comes to contract negotiations, we’re still partying like it’s 1999 (or at least 2002 , when the first Most Negotiated Terms report was first released by the International Association of Contract and Commercial Management ).
The problem seems to be one of mindset: whereas procurement and sales departments see contracts as a source of opportunity—a chance to get something the company needs or sell something the company produces—legal professionals continue to see them as a source of risk.
“Traditional attitudes to risk continue to dominate business relationships, at the expense of economic value and the adaptability we need to navigate today’s market conditions.”
Slower, less valuable contracts
This mindset is born out when you look at the survey data of what terms are most negotiated vs. what terms are considered “most important” by the business. Negotiations are focused on “issues that imply a lack of trust,” while businesses see the most important terms to focus on performance and rules for changing the terms of the agreement if conditions change.
The impact here is twofold—as previously noted, spending time and negotiating capital on negotiating terms that aren’t considered “important” raises the possibility that business is getting slowed down needlessly. But it also means companies may be hurting their ability to realize the full value of their contracts.
The survey raises an interesting “chicken-or-egg” conundrum: if we spent more time negotiating and agreeing to the report’s self-proclaimed “important” issues (like scope, goals and responsibility of the parties) would we minimize disagreements and our hyper-focus on negotiating limitations of liability and indemnification? Could we ensure more harmony through the life of the contractual relationship by spending negotiating capital on communications, reporting, and contract governance?
The report suggests the answer is “yes”: “It is elements such as these that keep the marriage on-track—so the fact they are often relegated to lower levels in the negotiation helps us understand why relationships may result in acrimony, if not divorce,” the authors note.
A path forward with data
The report does offer a path forward.
Throughout, there are anecdotes about companies using data to find ways to improve processes. For example, the vice president of contract management at one IT company tells WorldCC that their company has been able to leverage data from its contract management system to understand which clauses most often result in disputes. Powered by technology and data, their negotiators have shifted focus to improving and clarifying these clauses, thereby reducing friction in their business relationships.
With the right mindset and a focus on contract analytics , stories like the above will become more and more common as contract data becomes more robust and readily available. This won’t just make contracts better, but make business relationships better. By harnessing the full potential of contracts, companies will be empowered to take on more and more ambitious projects, knowing that their relationships are built on a solid foundation.
It’s time to start contracting like it’s 2024.
