Businesses suffer from poor contracting processes

More than half of the world’s major companies lose revenue and business opportunities because of poor contracting processes, EY Law and the Harvard Law School Center on the Legal Profession have said.

More than half of business development leaders (57 per cent) said contracting inefficiencies have slowed revenue or – in half of cases – lost them business, according to the survey.

The report – How does contracting complexity hide clear profitability? – found that nine out of ten respondents said they were trying to overall their processes. But almost all (98 per cent) admitted to be struggling to do so – with a further 38 percent saying their transformation efforts had failed.

Growth

“Revenue growth is a fundamental goal for any commercial organisation and effective contracting processes play a crucial role in making that possible,” Kate Barton, EY Global Vice Chair – Tax, said. “Contracting teams around the world know the value they can bring and they are making real efforts to transform, but the survey brings into sharp focus a whole range of obstacles that they must navigate if they are to make the improvements they are aiming for.”

Contracting professionals are under pressure to cut costs. One in three larger organisations said they wanted to cut contracting costs by 30 per cent or more.

Confusion over responsibility

The survey showed that too many people believe they are responsible for managing contracts – a situation that is creating confusion within enterprises. For example, 59 percent of legal departments believed they play the leading role, 56 per cent of contracting staff believed they were responsible. and 39 per cent of business development professionals think they are the decision-makers. They cannot all be right.

Almost all organisations said that their contracting technology was not up to scratch. “There is a gap between strategy and execution,” Barton said, “and many organisations face increased risk because they are unable to measure, manage and control adherence to their policy.”

Weak processes

The survey uncovered a lack of consistency among businesses, creating unnecessary contract risk. For example, 69 percent of organisations said they did not require staff to use a template when drafting contracts, and the same percentage did not insist staff stuck to rules or guidance.

“The fact that so many functions have an interest in – or responsibility for contracting – makes it difficult for most companies to manage their contracts effectively, David Wilkins, Lester Kissel Professor of Law and Faculty Director of the Center on the Legal Profession, Harvard Law School, said. “As we enter a period of accelerated growth and risk, business leaders must find new ways to balance these internal interests and manage their contracting functions for the future.”

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