Do you often struggle to gather all your stakeholders while drafting or negotiating a contract? Have you followed how unknown teams in this year’s world football competition have qualified for the quarterfinals, while stronger teams with players such as Messi are losing to average teams? Are you often asked to do everything on your own with no help while drafting or negotiating a contract? Do you feel a bit like Messi – someone who can do everything, but often ends up losing to a lesser-known team?
If all of this sounds familiar, welcome to the world of relational and collaborative contracting.
Contracting vs. football – what I’ve learnt
As an avid football fan, I’ve watched almost all of the matches in this year’s competition, and it’s true to say that there have been a few surprises. Argentina and Germany couldn’t even qualify for the quarterfinals! Shocking!
I was recently on a Lufthansa flight from Frankfurt to Krakow, and when the German pilot informed us mid-air that Germany had been knocked out, you could hear a pin drop in the cabin. I often hear this silence in the world of IT whenever someone loses out to the competition because of lack of coordination and understanding.
We all know that Messi – as the captain of Argentina – could have done a better job. Not only did he miss crucial opportunities, but he also failed to motivate his team. A similar analogy can be drawn in the world of contracting, with the different stakeholders and contract managers who have an important role to play as they connect the dots between Sales, Finance, Legal, and Delivery.
In the traditional approach to contracting, parties allocate obligations and deliverables that can encourage the blame game when things go wrong. However, relational contracting is more about problem-solving than blaming each other and extracting money by way of penalties and earn backs, etc. – a bit like in football when a midfielder makes a timely pass to a striker, who’s able to surge forward, past the defenders, and score a goal.
Relational and collaborative contracting
So what is a relational contract? According to the International Association of Commercial & Contract Management (IACCM), a relational contract focuses on a commercial partnership with a flexible contractual framework based on joint objectives of the parties.
IACCM further suggests that with the rise in cross-border/multi-geography partnerships, relational contracting is the stepping stone towards creating trust-based relationships, encouraging creativity, and most importantly by avoiding value leakage (loss of opportunity, increasing costs, etc.). While revenue leakage is easy to assess through conducting contract and finance audits, value leakage is intangible and therefore difficult to assess.
The future of relational contracting
Clearly, there’s a need to move from traditional contracting to relational contracting, and it may be difficult for an organization to change its behavior overnight.
While there’s no one size that fits for all types of contracting, relational contracting is gaining pace in the world of long partnerships, especially where innovation and agility is encouraged. Football teams would be wise to do the same – the team that most focuses on teamwork and close coordination will surely lift the cup.
Finally, as relational contracting is still at a nascent stage in the IT world, I’m looking forward to see how the courts interpret a relational contract in case of a dispute.
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Mani Agarwal advises clients on commercial and contract management transformation initiatives. He helps organizations to transform their contract lifecycle and contracts portfolio by implementing the right machine learning/AI tools. He also uses his expertise in optimizing the performance of contracts to ensure maximum value through all contractual opportunities and avoid any revenue leakage. Mani is a qualified lawyer and prior to his role he worked in various large legal and technology companies managing their contracts and risk.