Contracting For Impact

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Author: Tim Cummins

It’s great news that impact investment continues to grow, with latest estimates published by the Financial Times (April 1st, 2019) showing fund values are now more than $500bn.

To qualify as an ‘impact investment’, assets must be deployed in a way that ensures societal and environmental impacts are equal to financial returns. It is, therefore, a far more balanced view of economic benefit, recognizing that focus on financial returns alone is often at a high cost to society overall.

Mirroring a vision

In the context of IACCM, this development is exciting because it mirrors the Association’s vision of ‘a world where all trading relationships deliver economic and social benefit’. And it’s worth remembering that all these funds and associated investments are surrounded by contracts which must be designed to deliver these balanced outcomes.

Achieving the goals of IACCM and impact investments depends upon a fundamental shift in contracting practices and attitudes. Those responsible for their drafting and negotiation must move away from underlying assumptions of bad faith to a model where we design to support and encourage good.

A new realism 

Such a shift is not based on wishful or unrealistic thinking. Rather, it recognises the need to construct agreements that generate shared obligations for cooperative governance and mutual benefits, rather than a foundation of unilateral control and punishment. We need to face the fact that today’s approach to contracting simply doesn’t work. Except in the simplest transactions, it creates the wrong operational conditions, resulting in cost overruns, delays, and contention. Research increasingly shows the inevitability of these results if we continue with current methods. Yet rather than learn from our mistakes, many practitioners simply try to exert even more control, impose even harsher penalties and retreat behind the myth that ‘compliance’ can somehow fix the problem. It can’t and it won’t. So let’s do something different.

Stronger together

Sally Guyer, IACCM’s CEO, has written on a similar theme today, emphasising the rationale behind her #strongertogether mantra. Ultimately, humanity flourishes when people pull in the same direction when they care not only about personal power and status but recognise that sustainable wealth and prosperity depends on caring about outcomes and the impact on others. This means we must set more demanding goals and aspirations, then commit to agreed mechanisms for their realisation.

Contracts are foundational to our world. By contracting for impact, we truly can make it a better place.

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.

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