Whether you are a customer or a supplier, Speed to Contract (“S2C”) produces benefits. The faster parties come to “yes,” the sooner critical products or services can drive a customer’s business success, the quicker involved personnel can shift to other tasks, and the earlier revenue streams can hit the supplier’s books.
Unfortunately, all too often, negotiations over the same issues slow down the process. Many of us can replay arguments over limitations of liability, indemnifications, audits and the like in our sleep. A practical solution is at hand. IACCM is now endorsing a set of fair, balanced contracting principles that, if accepted in advance by the parties and built into template agreements, can remove these issues from the negotiating table and allow the business folks to focus quickly on the core of the deal – deliverables and commercials. Everyone wins.
The IACCM Contracting Principles just announced are the first step in what will be an expanding program that leads to a more robust S2C environment. Under the auspices of the IACCM, a group of large technology suppliers crafted six Principles addressing some of the more frequently contested clauses:
- Intellectual Property Rights and Indemnification for Third Party IP Claims
- SLA Remedies
- Customer Audits of Suppliers
- Liability Caps and Exclusions from Liability
- Data Security and Privacy
- Indemnification of Third Party Claims (Excluding IP Claims)
The Principles are available to view and download from the IACCM website as follows: https://journal.iaccm.com/contracting-excellence-journal/iaccm-contracting-principles
The Contracting Principles reflect a change in mindset on how contract negotiations should take place in a marketplace where efficiency and S2C are valued. For too long, a party’s “paper” has been highly biased in its favor under the belief that it should try to get every contractual advantage at the expense of the other party. Negotiation has been a battle over relative power, often acting as a diversion from real business interests. This is faulty reasoning for a number of reasons. First, the “battle of the paper” wastes valuable time with no long-term benefits being realized by either side, often diverting attention from more important business interests. In most cases, the parties will reach a predictable, market-driven equilibrium in contract terms, but only after arduous and labor-intensive negotiations. Long-term relationships are handicapped if the eventual agreement is unfair to one party. In a worst case scenario, the battle over boilerplate terms could kill the deal and maybe even the relationship.
A great deal of effort was put into making each of the Principles as commercially practical as possible to both buyers and sellers. Will everyone agree with every element in each of these Principles? Highly unlikely. Even those on the working team that drafted the Principles may not be successful is getting each group within their respective companies to accept the Principles in their entirety for every contract used. However, unanimity, while ideal, is not the objective. Our primary goal is to establish a rough consensus on what balanced terms look like. To the extent we “grease the skids” toward a middle ground, the shorter the timeline will be to reaching a mutually agreed document. We want to shift attention to how proposed solutions solve business issues and what a fair price is for the elements.
A draft set of the Principles was presented to a broad panel of IACCM buyers, sellers, consultants and law firms across multiple industries and geographies. While all of them commented on various points and objected to some, they overwhelmingly supported the initiative and saw significant improvement in S2C and relationship management flowing from the overall concept. These comments are illustrative of how positively the Principles were received:
- -“Clearly a lot of work has been invested, and there is a really positive tone in them, clearly solution-oriented. I am sure everyone who does contracting must be tired of the “oh, no, here we go again moment” in negotiations with the ritualistic back and forth on points where you know where you are likely to end up before you start.”
- “We can see how negotiation times could be significantly reduced if both Customer and Supplier organisations openly adopted a framework of principles such as these. Based upon the drafts that you provided we would be willing to consider formally accepting the IACCM Principles as a framework for a reasonable and balanced set of contract terms.”
Notably, the only unfavorable response was from a law firm that took the position that it had a fiduciary duty solely to protect the interests of their clients to the maximum extent possible. That view, of course, begs the question whether proposing and then aggressively negotiating one-sided terms actually fulfils the long-term benefits of that client. The Principles working group suggests that companies who want to achieve S2C improvements discuss business imperatives with their attorneys – both in-house and outside – so that broader business interests are understood and incorporated into boilerplate Ts&Cs and negotiating strategies.
The publication of these Principles is only the first step in a long-term plan with multiple facets. IACCM is initiating more publicity on the program so that members know the purpose and value of the Principles and ultimately adopt them. The Association will host a page on its web site so that companies can register their support and participation. In this way, companies will know when they are dealing with others who are similarly aligned with respect to relevant contract clauses and therefore will readily agree to terms that are consistent with the Principles. Inasmuch as the Principles were developed based on New York law, global use of the underlying concepts will require that they be reviewed and modified as necessary to comply with local laws (e.g., civil vs. common) and contracting customs. The working group also recognizes that the Principles must continue to evolve to account for differences in laws, business imperatives and local customs. Accordingly, IACCM will continue to seek input from members across various constituencies for suggested variations in various market segments. Anyone interested in participating in this project should contact IACCM (info@iaccm.com).
None of these work efforts can be accomplished without the active involvement of member companies across the world and across industries. The working group encourages all those who can obtain value from this initiative to get involved and support what will be a sea change in commercial agreement negotiations. S2C is not just a “would like to have”; it is a business imperative in a world of doing more with less, making every penny count, and driving for every competitive advantage possible. The IACCM Contracting Principles will be a fundamental contributor to S2C.