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Have we designed our contracts to fail?

WorldCC's latest studies on "Most Negotiated Terms", have the very thoughtful conclusion that there is a lack of coherence between the topics most often negotiated and the topics that are most value-creating or most disputed. This raises the question: What should you spend the most time on? See NSCCM's list of topics to prioritize.

Have we designed our contracts to fail?
Which terms do we spend the most time negotiating?

Through the past 20 years, the WorldCC has conducted annual surveys on "Most negotiated terms", in which members have been asked the following two questions:

  • Which terms do you spend the most time negotiating before signing the contract?

  • Which terms do you spend the most time disputing after the contract is signed?

In 2020, the analysis in the survey was expanded with a further question: Which terms do you think are most important – in the meaning: most significant in the impact on your outcomes or results?


The study has an interesting and very thought-provoking conclusion (Figure 1): The terms most often prioritized to negotiate are in fact not the same terms that are listed as most important or most disputed.


Figure 1: WorldCC Top 10 of most negotiated topics:


On the one hand, the survey shows that many contract managers in negotiations focus on regulating what happens if things do not go as planned (Limitation of Liability is No. 1 most negotiated terms). On the other hand, proportionally less time is spent negotiating terms that may ensure that things go as we expect (the scope of delivery is scored high on both most important and most disputed).

Somewhat provocatively, one might say that dealers negotiate based on an expectation that things will go wrong. Will it become a self-fulfilling prophecy?

 

Which terms should we focus on?

Perhaps, instead, we should actively start with the most important terms and the most disputed terms when we negotiate?


In Figure 2 below, you can see Christian Sandbeck and Anders Nordentoft Edelholt (ARC Contract Management) proposals for specific terms that they recommend be given high priority when negotiating IT contracts. The 10 areas are characterized by having a direct impact on the partners' business case.

 

Figure 2 : Top 10 negotiation topics in IT contracts



ARC Contract Management proposes that companies and organizations develop a script based on these 10 terms. This will increase the probability of the desired business goals being met.


At NSCCMs new course Practical IT contract management, these 10 terms are precisely the recurring theme. During the course, we go in-depth with each area, and you will get concrete tools, templates and checklists that will help you secure your company's business goals.

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