Author: Tim Cummins
If the reason for negotiation is to reach an agreement that delivers mutual benefit, it is quite clear that many of today’s business-to-business negotiations fail to achieve their purpose.
IACCM has released this year’s report of the most negotiated terms, providing insight from more than 2,100 organizations. Participants confirm the steady shift of business towards services, reflected in substantial growth of outcome, performance and solutions contracts.
This movement is evident in the terms that negotiators consider most important:
- Scope and Goals / Specification
- Responsibilities of the parties
- Price / Charge / Price Changes
- Delivery / Acceptance
- Service Levels
- Performance / Guarantees / Undertakings
- Limitation of Liability
- Data Protection / Security / Cybersecurity
- Change Management
However, this understanding of importance does not translate to a shift in the terms that are most negotiated, which remain dominated by issues around risk allocation and the consequence of failure. Limits of liability, Indemnities, Termination and Warranties occupy four of the top six positions.
There is some diversity in the most negotiated topics based on legal system and industry – for example, battles over risk transfer are noticeably greater in Common Law jurisdictions, whereas countries operating under Islamic Law tend to be far more focused on financial issues and Civil Law regimes appear more concerned about clarity of responsibilities and intent. The research therefore illustrates the importance of negotiators understanding the issues that drive particular industries or cultures and taking these into account as they draft and negotiate agreements.
Is there room for optimism?
The results do not point to any dramatic shift in the traditional priorities for negotiators and indicate that many interactions remain power-based, rather than seekiing mutual benefit. Participants continue to see ‘the other side’ as the main obstacle to change and show limited signs of seeking to alter the conversation.
However, IACCM knows from its work with members that change is happening. New technologies are a major (though not the only) factor in enabling a different approach, streamlining dataflows, supporting analytics and simplifying communication. Automation has the benefit of lacking emotion and takes issues of trust and tradition out of the equation. There is a growing divide between those organizations which are making technology investments and those that are not. Quite simply, without automation, a supplier becomes difficult to do business with.
In this year’s report, IACCM highlights four steps that organizations should take to shift the negotiation agenda and enable focus on value and benefits. These are:
- Focus negotiations on the terms that are costing money. Supporting this direction, the report publishes a list of the terms most commonly associated with a claim or dispute and suggests this data can be used to support a change of focus.
- Ensure use of the right agreement by implementing ‘decision trees’. Remarkably, work with IACCM members has shown that far too many agreements are based on an inappropriate contract template, which not only delays the process, but also represents a source of risk.
- Reduce repetitive negotiation by adopting the IACCM Principles. These Principles, which are freely available, have been developed by lawyers representing a group of leading international corporations with the specific purpose of enabling less time on the terms linked to failure and more on those which would support success.
- Improve implementation and understanding by automating extraction and dissemination of terms. More and more organizations are grasping the importance of structuring and drafting agreements as communication tools, whether or not this is accompanied by automation.
Perhaps the most important message is that change is starting to happen; the agenda is shifting and the pace shows clear signs of accelerating. So the key message is: Stop listening to people who say that change isn’t possible – don’t get left behind.
This year’s report on the Most Negotiated Terms can be accessed on the IACCM website
Read more from Tim Cummins on the Committment Matters website.
Tim Cummins is CEO of the International Association for Contract & Commercial Management (IACCM), a non-profit organization that he founded in 1999. Read more here.