Comments for Commitment Matters http://tcummins.wordpress.com Managing Relationships in the Global Networked Economy Sat, 28 Nov 2009 20:47:54 +0000 http://wordpress.com/ hourly 1 Comment on The Purpose Of A Contract by mohamed S. Faitouri http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1055 mohamed S. Faitouri Sat, 28 Nov 2009 20:47:54 +0000 http://tcummins.wordpress.com/?p=483#comment-1055 Thanks Tim, I believe if we have a contract that protect the parties and thier deal i.e A BALANCED CONTRACT then the problem is solved. It is said, this is a very complex subject and we are touching base where it will be wise and fruitfull if you can summerized all our comments into one essay. Mohamed S.Faitouri Thanks Tim, I believe if we have a contract that protect the parties and thier deal i.e A BALANCED CONTRACT then the problem is solved.

It is said, this is a very complex subject and we are touching base where it will be wise and fruitfull if you can summerized all our comments into one essay.

Mohamed S.Faitouri

]]> Comment on The Purpose Of A Contract by tcummins http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1050 tcummins Thu, 26 Nov 2009 17:32:49 +0000 http://tcummins.wordpress.com/?p=483#comment-1050 Ellen, your thoughts certainly mirror those of many when you talk about the impact on the business relationship. I will be writing more on this point because I think many of us struggle with knowing how to define and engineer the best relationship for the specific deal. For example, the contract drafters are frequently brought in too late or are denied the chance to have the right dialogue with the other party, so we are sometimes preparing contracts without in-depth understanding of the true goals of the other side; and of course, if we are not confident that the right discussions have been held, we naturally make sure that the contract protects us from that uncertainty ... and in the process may further undermine the relationship. Achieving quality contracting demands honest and inclusive team behavior - and often that seems to be absent. Ellen, your thoughts certainly mirror those of many when you talk about the impact on the business relationship. I will be writing more on this point because I think many of us struggle with knowing how to define and engineer the best relationship for the specific deal. For example, the contract drafters are frequently brought in too late or are denied the chance to have the right dialogue with the other party, so we are sometimes preparing contracts without in-depth understanding of the true goals of the other side; and of course, if we are not confident that the right discussions have been held, we naturally make sure that the contract protects us from that uncertainty … and in the process may further undermine the relationship. Achieving quality contracting demands honest and inclusive team behavior – and often that seems to be absent.

]]> Comment on The Purpose Of A Contract by Ellen Samuels http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1049 Ellen Samuels Thu, 26 Nov 2009 17:14:38 +0000 http://tcummins.wordpress.com/?p=483#comment-1049 I was intrigued when I followed an email in my inbox to this posting, but not to examine the quality but rather because of the title, "The Purpose of Contract". WHile the "quality" of contracts is something I think about every time I work on one, more often at a micro level, I agree that the quality of contracts at a more macro level is a foundation to the question about the purpose - which is one that is tested every day in the world of ever decreasing resources for our legal team as well as our business team. One answer I find myself coming back to is that the process of making a contract, if done properly, results in a better business relationship. The process of asking questions, internally and with the counterparty, (and the list of questions in Mr. Russell's post are excellent in this regard) cause each party to better understand and express their intentions in creating the business relationship and the contract - a "meeting of the minds". I was intrigued when I followed an email in my inbox to this posting, but not to examine the quality but rather because of the title, “The Purpose of Contract”. WHile the “quality” of contracts is something I think about every time I work on one, more often at a micro level, I agree that the quality of contracts at a more macro level is a foundation to the question about the purpose – which is one that is tested every day in the world of ever decreasing resources for our legal team as well as our business team. One answer I find myself coming back to is that the process of making a contract, if done properly, results in a better business relationship. The process of asking questions, internally and with the counterparty, (and the list of questions in Mr. Russell’s post are excellent in this regard) cause each party to better understand and express their intentions in creating the business relationship and the contract – a “meeting of the minds”.

]]> Comment on The Purpose Of A Contract by tcummins http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1047 tcummins Wed, 25 Nov 2009 19:45:20 +0000 http://tcummins.wordpress.com/?p=483#comment-1047 Richard, thanks so much for this. I read yor conclusions with particular interest since they closely mirror the approach we take in the IACCM Managed Learning programs, where we similarly break the contract into its component elements. Richard, thanks so much for this. I read yor conclusions with particular interest since they closely mirror the approach we take in the IACCM Managed Learning programs, where we similarly break the contract into its component elements.

]]> Comment on The Purpose Of A Contract by tcummins http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1046 tcummins Wed, 25 Nov 2009 19:42:09 +0000 http://tcummins.wordpress.com/?p=483#comment-1046 Mark, you are completely right that many of our lessons should come from the post-award environment. After all, quality is judged by results, not simply good intentions. I think a key part of the problem is that those who create the contract are oten not accountable for its implementation and subsequent performance. When organizations are responsible for the results of their work, they become far more focused on its quality! Mark, you are completely right that many of our lessons should come from the post-award environment. After all, quality is judged by results, not simply good intentions. I think a key part of the problem is that those who create the contract are oten not accountable for its implementation and subsequent performance. When organizations are responsible for the results of their work, they become far more focused on its quality!

]]> Comment on Why Does It Take So Long? by tcummins http://tcummins.wordpress.com/2009/11/24/why-does-it-take-so-long/#comment-1045 tcummins Wed, 25 Nov 2009 19:38:46 +0000 http://tcummins.wordpress.com/?p=493#comment-1045 Thanks so much for this great example of 'contracting excellence'. I wonder whether you have data on the financial benefits that your initiative achieved? And yes, I wish you success in expanding this approach to other areas of the contracting process. Thanks so much for this great example of ‘contracting excellence’. I wonder whether you have data on the financial benefits that your initiative achieved? And yes, I wish you success in expanding this approach to other areas of the contracting process.

]]> Comment on The Purpose Of A Contract by Richard Russell http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1043 Richard Russell Wed, 25 Nov 2009 17:21:33 +0000 http://tcummins.wordpress.com/?p=483#comment-1043 Tim, I have been pondering your excellent question for some days and now I finally get around to commenting. I find a number of further fascinating views and ideas. Firstly, a contract is by definition an agreement which is legally binding. As the law presumes agreements, between companies, individuals having legal capacity and certainly between companies and individuals, are intended to be legally binding, the purpose of contracts must therefore be to fulfill a legal necessity. But this legality issue is not the basis of your question. However, I am left wondering if it is primarily for reasons of legality rather than to encapsulate the value creation purpose of the “deal” that companies put their contracts into writing. Whereas, on the other hand, individuals, perhaps through ignorance, are more inclined to rely upon their oral agreement and thus have their focus on the value of the deal and less so the legality. Taking this hypothesis a little further, could it be that the legality focus causes buyers to draft contracts in a manner which provides the maximum flexibility to demand “satisfaction” from the seller without defining what “satisfaction” means until it is, “in the opinion of the buyer”, provided? Whilst, sellers draft contracts to minimise the legal (financial) consequences of their failure to perform? Either way, the end result fails, to a greater or lesser extent, to encapsulate the value both parties undoubtedly expect and most likely state to each other they desire to achieve from the deal. I am of the opinion that a “good” written contract should address both the value creation and legality purpose in at least equal measure and I propose a definition of what is a good contract which I believe fits the SMART concept. A “good” contract defines the respective obligations of the parties in terms of: 1.“What” has to be provided by “Whom” and “When” 2.“How” the “What” and “When” will be verified / measured 3.The procedures to be followed in managing the interfaces between the parties 4.The consequences of deviations in performance 5.The process by which the parties will seek to resolve their differences. This going beyond “the parties shall seek to resolve disputes amicably and if not we’ll see you in court” by exploring the range of Alternative Dispute Resolution processes available to assist the parties in coming back to the original purpose If the contract is drafted in such a way as to fulfill these, and probably a few other, objectives the contract itself becomes the tool by which the parties establish and fulfill a constructive relationship. The devil is of course in the detail! Tim, I have been pondering your excellent question for some days and now I finally get around to commenting. I find a number of further fascinating views and ideas.
Firstly, a contract is by definition an agreement which is legally binding. As the law presumes agreements, between companies, individuals having legal capacity and certainly between companies and individuals, are intended to be legally binding, the purpose of contracts must therefore be to fulfill a legal necessity. But this legality issue is not the basis of your question. However, I am left wondering if it is primarily for reasons of legality rather than to encapsulate the value creation purpose of the “deal” that companies put their contracts into writing. Whereas, on the other hand, individuals, perhaps through ignorance, are more inclined to rely upon their oral agreement and thus have their focus on the value of the deal and less so the legality.
Taking this hypothesis a little further, could it be that the legality focus causes buyers to draft contracts in a manner which provides the maximum flexibility to demand “satisfaction” from the seller without defining what “satisfaction” means until it is, “in the opinion of the buyer”, provided? Whilst, sellers draft contracts to minimise the legal (financial) consequences of their failure to perform? Either way, the end result fails, to a greater or lesser extent, to encapsulate the value both parties undoubtedly expect and most likely state to each other they desire to achieve from the deal.
I am of the opinion that a “good” written contract should address both the value creation and legality purpose in at least equal measure and I propose a definition of what is a good contract which I believe fits the SMART concept.
A “good” contract defines the respective obligations of the parties in terms of:
1.“What” has to be provided by “Whom” and “When”
2.“How” the “What” and “When” will be verified / measured
3.The procedures to be followed in managing the interfaces between the parties
4.The consequences of deviations in performance
5.The process by which the parties will seek to resolve their differences. This going beyond “the parties shall seek to resolve disputes amicably and if not we’ll see you in court” by exploring the range of Alternative Dispute Resolution processes available to assist the parties in coming back to the original purpose
If the contract is drafted in such a way as to fulfill these, and probably a few other, objectives the contract itself becomes the tool by which the parties establish and fulfill a constructive relationship. The devil is of course in the detail!

]]> Comment on The Purpose Of A Contract by mark colechin http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1042 mark colechin Wed, 25 Nov 2009 16:51:30 +0000 http://tcummins.wordpress.com/?p=483#comment-1042 Tim A very complex subject and many different views being shared in this debate. I would like to add a couple of thoughts based on my experience as a contracts/supplier manager of large corporate deals post signing over the last 10 years. If you were creating a "best in class" contract guide then many of the earlier comments apply but I would also want to incorporate learning from post contract experiences by creating a checklist of potential issues (good and bad) This would help highlight and tackle aspects such as: size of the deal, the equality of the buyer/supplier going forward (who holds the power?), ease of supply (ability to change will affect attitudes), quality of both parties supplier management teams to extract the value over the term, knowledge of the contract provisions (you can have a great contract but if the teams don't have the skills to implement it or understand it value will be lost), etc etc. I would want to add in the most frequently asked questions between supplier and buyers post signing and issues/escalation due to poor contracts; some example that always come up are payment for services - over complicated, how does it uplift year on year, what are we paying for? How do we partner to increase innovation, drive down cost and increase benefits for both parties, poor pipeline management of volumes/needs - missed deliverables and milestones, inflation and currency clauses, Intellectual property rights, Business Continuity - always poor and usually left to 6 months after contract signing. I could go on and on but my point is that if this was a comprehensive list with support material showing type of deal, size etc you could focus on the key aspects to mitigate risks and drive the best value by cherry picking the right clause to suit your needs. I look forward to seeing the finished article! Regards Mark Tim
A very complex subject and many different views being shared in this debate. I would like to add a couple of thoughts based on my experience as a contracts/supplier manager of large corporate deals post signing over the last 10 years.
If you were creating a “best in class” contract guide then many of the earlier comments apply but I would also want to incorporate learning from post contract experiences by creating a checklist of potential issues (good and bad) This would help highlight and tackle aspects such as: size of the deal, the equality of the buyer/supplier going forward (who holds the power?), ease of supply (ability to change will affect attitudes), quality of both parties supplier management teams to extract the value over the term, knowledge of the contract provisions (you can have a great contract but if the teams don’t have the skills to implement it or understand it value will be lost), etc etc.
I would want to add in the most frequently asked questions between supplier and buyers post signing and issues/escalation due to poor contracts; some example that always come up are payment for services – over complicated, how does it uplift year on year, what are we paying for? How do we partner to increase innovation, drive down cost and increase benefits for both parties, poor pipeline management of volumes/needs – missed deliverables and milestones, inflation and currency clauses, Intellectual property rights, Business Continuity – always poor and usually left to 6 months after contract signing. I could go on and on but my point is that if this was a comprehensive list with support material showing type of deal, size etc you could focus on the key aspects to mitigate risks and drive the best value by cherry picking the right clause to suit your needs.
I look forward to seeing the finished article! Regards Mark

]]> Comment on Why Does It Take So Long? by Peter http://tcummins.wordpress.com/2009/11/24/why-does-it-take-so-long/#comment-1040 Peter Wed, 25 Nov 2009 10:10:17 +0000 http://tcummins.wordpress.com/?p=493#comment-1040 Mark indeed raises a good question. In my construction practice we have a nice changemanagement databasetool which provides us graphs and data regarding the time between issueing a change (whether by the customer or contractor), value and acceptance of the change to benchmark and if necessary to improve the changeprocess. This tool has been developed to alert the management (on customer and contractor side) to show the schedule and money impact on the project by not acting in time. It sounds silly but when I pointed the management on their poor performance in the change process, they seemed to be not aware of the extra money the can earn by making their descisions in time. Why don't we develop a similar tool to monitor the time to take the several procedure steps from inception of a deal to signment of the contract? Contract management has to take the lead in improving the company processes to acertain that the company retains its leadership position. I will suggest it to the management! Peter Mark indeed raises a good question.
In my construction practice we have a nice changemanagement databasetool which provides us graphs and data regarding the time between issueing a change (whether by the customer or contractor), value and acceptance of the change to benchmark and if necessary to improve the changeprocess.

This tool has been developed to alert the management (on customer and contractor side) to show the schedule and money impact on the project by not acting in time.
It sounds silly but when I pointed the management on their poor performance in the change process, they seemed to be not aware of the extra money the can earn by making their descisions in time.

Why don’t we develop a similar tool to monitor the time to take the several procedure steps from inception of a deal to signment of the contract? Contract management has to take the lead in improving the company processes to acertain that the company retains its leadership position.
I will suggest it to the management!

Peter

]]> Comment on The Purpose Of A Contract by tcummins http://tcummins.wordpress.com/2009/11/18/the-purpose-of-a-contract/#comment-1039 tcummins Wed, 25 Nov 2009 07:44:58 +0000 http://tcummins.wordpress.com/?p=483#comment-1039 Zhibek, you are certainly right that a feature of contracting is the relative power of the parties. In the examples you cite, the provider may seek to exercise their power by imposing tcontract terms that are rigid and self-serving - just as many buyers do when dealing with small suppliers or when there is abundant competition. It is unlikely that such behavior will go away - even though the advantage may be relatively short-lived because such imbalance results in a loss of loyalty and may therefore act to the longer term disadvantage of the dominant company. So even here, we must understand the impact that contract behavior will have and ask ourselves the question "Is this the outcome we wish to achieve? Is the contract supporting our business goals?" Zhibek, you are certainly right that a feature of contracting is the relative power of the parties. In the examples you cite, the provider may seek to exercise their power by imposing tcontract terms that are rigid and self-serving – just as many buyers do when dealing with small suppliers or when there is abundant competition. It is unlikely that such behavior will go away – even though the advantage may be relatively short-lived because such imbalance results in a loss of loyalty and may therefore act to the longer term disadvantage of the dominant company. So even here, we must understand the impact that contract behavior will have and ask ourselves the question “Is this the outcome we wish to achieve? Is the contract supporting our business goals?”

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