Procurement contracts are losing 11 percent of value after the deal is signed, with the gap widening relative to suppliers, according to new research from World Commerce & Contracting (WorldCC).
Produced in partnership with Ironclad, the organisation’s new Closing the Procurement Value Gap report warns that value leakage is caused by the accumulation of losses across multiple failure points, with action needed across the lifecycle to reverse this growing trend.
Missed savings from poor negotiation, unauthorised or unrecorded changes, and renewal costs from poor forward-planning are noted as being responsible for the biggest losses, each accounting for around two-to-three percent of lost value.
Lower down the scale, at around one-to-two percent, unmanaged clauses and overpayment from untracked price adjustments sit alongside penalties and disputes from missed obligations, relationship damage and lost innovation.
Cautioning that these figures could be significantly higher as most organisations fail to formally track value leakage, WorldCC stresses that understanding where value is lost is key for procurement teams, allowing for prompt interventions and calculating exposure to risk.
“The evidence points to an overall lack of coherence in how the contracting lifecycle is managed. Value leakage happens after signature, in how organisations translate contracts into behaviour, governance and relationships,” said WorldCC.
“However, the gaps are not confined to any one phase of the acquisition process. They reflect an enterprise-wide failure to structure and manage contracts as living commercial relationships rather than static documents.
“Procurement and Legal, as traditionally configured, contribute to these gaps rather than closing them. Their tendency to focus on pre-award activity means the functions that might be expected to provide commercial expertise frequently exit at precisely the moment when that expertise is most needed.
“Closing the value gap requires not just better procurement, but a fundamental rethinking of accountability for contract outcomes.”
Providing an organisational checklist to help close the gap, WorldCC points to several key actions that businesses can take immediately, including determining where accountability resides, addressing foundational gaps, using sustained oversight and investing in the quality of human relationships.
Organisations that modernise their contracting approach – to include smarter digital workflows and proactive performance management – will not only stem leakage, but could take the lead in transforming contract management into a source of competitive advantage, suggests the report.
Emphasising that this is an enormous opportunity to recover from lost savings, unrealised innovation, weakened supplier relationships and diminished competitive advantage, WorldCC’s research opens up an important discussion, paving the way for a clear path forward.
The Closing the Procurement Value Gap report was collated through research, interviews and surveys, and delves into the capability gap, market context, adaptive terms, and the role of technology and AI.
It examines where value is lost, why traditional procurement approaches are insufficient and how organisations can reverse the trend.
