One of the highlights of the Next Practices Exchange (NPX) was a presentation by Brad Peterson, partner at the law firm of Mayer Brown on “How to Communicate the Value You Create in Negotiating Contract Terms.”
As organizations seek new levels of value it is necessary to extend the supply chain to involve non-traditional stakeholders. For those who missed NPX, Brad gave great examples of how the Legal department can partner with and assist the sourcing group. As a result, many NPX participants now have newfound respect for contracts as competitive weapons in the fight for value.
One attention-grabbing observation Brad made was that just as there is great value in good contract terms, there’s significant harm in bad contract terms. Some examples of important contract terms to focus on: pricing structures, escalators/de-escalators, the ability to change terms, out clauses, performance incentives, and a deep understanding of where and how the supplier will provide the products and services required.
Taken in the context of NPX this presentation was full of many AEIOU messages:
- The Legal department should be thought of as a supply partner not a process bottleneck.
- Contracts are a vital communication that help safeguard the rights of both parties.
- Companies typically don’t realize the value of contract terms. Because of this, companies make poor decisions that result in poor outcomes.
- Contracts are valuable assets. Contracts matter and the work you do in securing better contracts create value for all parties.
- Contracting should be thought of as an investment with tangible exciting returns. Investments in contracts and the contracting process can and should be measured.
- Involving external stakeholders such as Legal in negotiation and contracting discussions is a critical way of adding legitimacy and value to the sourcing process.
- Communicating the value received from properly structured contacts is a vital step towards creating a culture that actively seeks improved contracts terms.
Thanks again to Brad for a fine presentation!