contract negotiation terms

Top 10 Most Negotiated Terms

Undermasthead Shape

Will there be a new entry straight in at Number 1?

The most heavily negotiated terms, according to research conducted by the International Association for Commercial Contract Management (IACCM), and published in last years results, are as follows:

  1. Scope and specification
  2. Responsibilities of the parties
  3. Price / charges / price changes
  4. Delivery / acceptance
  5. Service levels
  6. Performance / guarantees / undertakings
  7. Limitations of liability
  8. Payment
  9. Data Protection / security / cybersecurity
  10. Change management

The majority of the remainder are commonly referred to as “boilerplate terms” and do not typically attract much, if any, attention and debate when contracts are negotiated; this includes the Force Majeure clause. As a result of such an unprecedented and unforeseeable worldwide event as COVID-19 Pandemic, previously overlooked and historically generic words that comprise most Force Majeure provisions are surely now going to attract massive attention going forward…and will presumably already have jumped to the top of the Top 10 most negotiated terms when they are published by IACCM later this year?

Anecdotally, there is a real focus on the future and more positive collaborative relationships in the future as a result of COVID-19. IACCM have recognised the maturity of contract management space has improved.  However, adjusting to the “new normal” will require:

  1. Contracts digitised, transformed into actionable insights
    • With AI trained on a repository of digitised contracts, companies can extract critical clauses like force majeure to make quick decisions
  2. Distributed, global teams collaborate on cloud platforms
    • Focus on what matters now, stabilise core systems and anticipate what’s next
  3. Adoption of Contract Lifecycle Management techniques across organisations and across the globe
    • Collaboration on a fix first and sort out the finances later basis, but whilst also reserving the parties’ positions regarding still using contract mechanisms such as relief and compensation
  4. Agreement on what constitutes an unforeseeable event going forward
  5. Who is best placed to own and control the risk as a result of COVID-19 Pandemic

COVID-19 has impacted contracts worldwide, however, some geographies much more than others. Those geographies whose organisations have adopted digitisation over the past decade are those who have been better equipped to survive and maintain relationships. For example, although the US have been hugely impacted, their ability to negotiate, remain agile and maintain relationships online has enabled them largely to uphold deliverability in many areas.

Thus, when managing your own organisation it is essential to analyse all contracts, identifying geographies, evaluating their potential impact, recognise alternative suppliers if necessary, consider clauses within contracts and determine whether it is possible to delay or terminate / exit contracts if necessary.

To survive it is necessary for organisations to implement their best practices in business continuity. Therefore it is essential to continue business in a changing environment where possible, to remain focused on capability and deliverability, to ensure employees are provided with the correct equipment to recommence services to clients from home and to reach out to the supply base and ensure lines of communication are effective and uninterrupted.

During these times, the effectiveness of technology and Artificial Intelligence (AI) will prove more and more valuable if implemented effectively. In terms of mapping and understanding complex problems and solutions and removing inefficiency in the supply chain.

IACCM have undertaken many surveys and research having surveyed over 500 companies ranging in size. A lot of organisations have different systems in place for buyer and seller sides of their organisation.

  • More than 30% of procurement contracts reference services that are dependent on specific geographical regions for their delivery, meaning mitigation is slow when that specific geography is affected
  • More than 40% of the contracts are with parties in cities that are severely affected by COVID-19.
  • Less than 20% of framework contracts or master services agreements do have a force majeure clause
  • Less than 15% of force majeure clauses refer to a pandemic or a global health situation specifically and therefore, arguably, would not be invoked due to the COVID-19 pandemic.

Well over 80% of the community have been working from home and we are as country now looking at protocols for returning to work, which is a huge test of the resilience of business processes. However, in order to pivot to the new normal, contracts must be digitised and global teams must collaborate on cloud platforms. There will be far greater concentration on relationships and mitigation processes and of course all organisations should prepare for the future by adopting these practices to the best of their ability – as this might be top of the Top 10 for some time to come.