3 Ways To Improve Your Procurement Contracts for Immediate ROI

A big ol'read full of actionable information

Procurement contracts are overly complex and destroy any savings and value generated throughout your RFx/Sourcing process. Lucky for you, this is the area I like to nerd out in.

We will focus on three areas in this article where you can radically improve your contracts and realise an ROI in the contracting process whilst ensuring you obtain the value generated pre-signature.

A keen insight into this transformation comes from a recent World Commerce and Contracting report, The ROI of Contracting Excellence, which sheds light on some of the pragmatic approaches organisations can adopt to harness the full potential of their procurement contracts.

The first point is focused on the Simplification of Agreements. This explores how de-jargoning contracts and making them…well, simpler can speed up the agreement process, reduce performance risks, and enable better adherence to the evolving environmental, social, and governance principles. Not to mention everything else we need to worry about.

The second point, Clarity of Contracting Lifecycle, underscores the necessity of demystifying the contracting lifecycle to avoid costly delays and make informed, proactive decisions. In short, we’ll be covering how you move away from a reactionary method of working to a proactive way of working.

The final pivot, Portfolio Segmentation, discusses a systematic approach to categorising contracts based on their volume and risk profile, enabling a more focused and resource-efficient management across the contract portfolio. I’ve built a segmentation model for contracts that I’ll share later in this article.

The underpinning thread across these strategies is the reactive to proactive contract management shift. By simplifying, clarifying, and categorising contracts, organisations set the stage for immediate ROI and foster a conducive ecosystem for sustainable, value-driven procurement practices.

Simplification of Agreements

Procurement contracts are horrendous at times. I’ve had the displeasure of working through hundreds, perhaps thousands, of crappy contracts.

And ultimately, the issues boil down to the following pain points:

• Complex language and legal jargon: Contracts often use complicated words that can be hard to understand. And this applies to legal pros such as lawyers and laypeople who do not understand the law. When the lawyers are confused, you know we have an issue.

• Ambiguity and poorly structured agreements: If a contract isn’t clear or well-organised, it can lead to misunderstandings. This is a common problem with the structural element of a contractual document. The worst offenders can be online agreements linking to several (I’ve seen contracts link out to 10-40 different documents). Reading, reviewing, and then trying to negotiate is a nightmare.

• Long approval times: The harder a contract is to understand, the longer it takes to get it approved.

• Tested Language Orthodoxy: Some people stick to old ways of writing contracts because they think it’s safer, even if it’s hard to understand. Ken Adams, a wonderful legal pro who wrote this incredible book (#ad) that anyone who works with contracts should buy, is on a mission to simplify contracting. He focuses on the Tested Language, Orthodoxy, as it makes absolutely no sense. We should not rely on contract language brought to the courts for being unclear. We should rely on the contracts that avoided ambiguity and that were clear, that never made it to court.