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What Agile Development Techniques Can Teach Us About Building Better Contracts

By Vivek Bharti

When designing a new widget, experienced product managers know that they can't slap a quality control process at the end of the design process and expect a good output. Rather, QC must be designed into every step of the design process, with inputs from stakeholders along the way. Process quality drives output quality.

It's this mindset that has given rise to the concept of concurrent engineering within product design and agile development in the IT world.

Yet as Spend Matters notes in a new report, "Designing the Sourcing Process for Contract-ability: Why ‘Concurrent Contracting' is crucial to unlocking maximum commercial value," sourcing organizations often take the opposite approach when building a contract, which are the ultimate "product" of a sourcing event: "Contracting is too often conducted in earnest only after the majority of the supplier selection and negotiation processes are completed," Spend Matters writes.

Leaving contracts for last leads to new requirements and obligations arising during the contract negotiation process after a supplier has been selected: "You can guess the results: drawn-out contract reviews, re-negotiations (which may force re-executing the sourcing process), and loss of supplier trust/goodwill that will come back to haunt the commercial relationship."

A Better Way: Contract-centric Sourcing

Fortunately, there is a better way: contract-centric sourcing. Contract-centric sourcing uses contract management software to introduce contract language at the beginning of the supplier selection process and invite potential suppliers to submit redlines to the contract alongside commercial and technical specs. Just like getting product feedback early in a design process, this approach gets contract feedback early in the selection process to avoid any unforeseen challenges later.

In addition to helping companies understand the tradeoffs between commercial, technical and contractual bid proposals, contract-centric sourcing also introduces cross-functional collaboration into the sourcing process. Rather than procurement selecting a supplier then passing them off to legal to work out the contractual details, legal is involved from the start with insights into which contractual redlines are acceptable and which make a supplier unsuitable for the business.

The Software Matters

Contract-centric sourcing is not a strategy that can be carried out by any sourcing suite or contract lifecycle management (CLM) system. In fact, Spend Matters writes, most sourcing software requires companies to take a sequential approach to sourcing and contracting due to its predesigned workflows.

Uniquely, the Icertis Contract Management (ICM) platform and the ICM Sourcing application are designed to enable a contract-centric approach to sourcing.

Spend Matters writes, "When it comes to enabling a sourcing process for contract-ability, Icertis is the first vendor to really build out a truly CLM-centric sourcing platform. Icertis clients can use the Icertis Contract Management (ICM) platform and its ICM Sourcing app in tandem to run a standard RFX and multi-round sourcing event while concurrently creating, negotiating and finalizing a contract."

Companies including Daimler are leveraging the Sourcing app to accelerate deals, reduce risk and optimize their sourcing outcomes.

The Benefits of Contract-centric Sourcing

Spend Matters identifies five primary benefits of contract-centric sourcing:

1. 100% "Perfect Contract" attainment in terms of zero defects/rework and 100% post-negotiation contract signature at the end of the process: When all contract considerations are made during the bidding round, attainment of a 100% perfect contact is a reality.

2. Increased speed and reduced cycle times: Concurrent contracting greatly speeds up deals as work is consolidated into a single motion.

3. Risk reduction and improved flexibility for dynamic requirements: Suppliers' requirements (and capabilities) can't be ignored, and contract-centric sourcing allows buyers to accommodate their requirements while better managing the risk that comes with them.

4. Cost reduction: Lawyers aren't cheap. This approach is more efficient with staff time.

5. Improved spend management, supplier management, contract compliance and spend/supply performance: Contract-centric sourcing forms the basis of better downstream P2P execution, supplier performance monitoring, and ongoing relationship development.

You can download the entire report here. To learn more about the ICM Sourcing app and Icertis' approach to sourcing, visit our product page.