Negotiation is, like most things in life, undergoing substantial change. Why? Well, we have seen over the last decade a move to forms of procurement that do not require any negotiation at all. Public procurement positively encourages the non-negotiation of contracts: for example, they conduct a competitive dialogue to scope the requirement and thus enable a formal competitive bid in which no negotiation is permitted, only clarification questions. The use of reverse auctions and or platforms that present goods, their cost and availability for the user to select and confirm again rules out the need for negotiation.
These changes mean that organisations need to approach the management of their contracts differently. If you do not trust your suppliers, then you must ensure contract obligations are met, and you do this by checking. To do so with most current contracts is almost impossible for an individual, therefore new ways of working are required.
Contract Toolkit is an example of such a way of working. Rather than one individual having to monitor more than a thousand obligations in a standard contract, the system allocates the checking to the most appropriate person in either your organisation or the supplier organisation. The system reminds the individual to confirm that the obligation has been met. It indicates to management when and if an obligation has not been completed or if the person checking the obligation believes that there is a problem. This is all done in real-time in a shared cloud-based version of the contract presenting one version of the truth.
Now, even though the contract has been checked, when issues arise, there may be a need to negotiate a settlement of the problem. Such negotiations will be limited through technology going forward. For example, in many contracts, there are service levels and service credits for when those levels are not achieved. I have debated on too many occasions whether a service credit is applicable and, if it is, is it fair to apply it. The future will have the systems of the two organisations linked and when the required performance is not achieved one system confirms to the other the value of service credits owed. It is automatically deducted from the next invoice. The technical departments will still try to discover why the service did not hit the required levels however the involvement of commercial and finance is no longer necessary as no negotiation is needed.
What is required for these new ways of negotiation? Trust, a shared mutual understanding of agreed data and a willingness to collaborate. It is no longer a case of “them and us” or “win at all costs”, it is a case of ensuring the deal you have signed is the deal you receive. I suggest the tone and the tenor of such negotiations will be radically different. Those charged with delivering and receiving will have to work together and become a virtual team of contracting parties. Management of both organisations will need to agree shared goals for their people, similar in many ways to the approach taken at Terminal 5 Heathrow where this sharing of goals was used.
Are you prepared for these new ways of working? Have you considered how you can adapt your software stack to assist you on this journey? We can provide Contract Toolkit as a standalone app or, in some cases, as a process using your existing systems. Talk to us.
Author: Graeme Sloan