Pandemic highlights broken contract processes: Office of Contracting may be the fix
In collaboration with KPMG Law, World Commerce & Contracting (WorldCC) surveyed executives from across the globe, gathering insights into the process of contracting across industries ― and how to fix perennial and costly problems in the contract development process.
- Almost 90% of organizations have ineffective and fragmented contracting processes
- 76% of organizations want to prioritize digitalization of contracts
- A potential solution lies in setting up an “Office of Contracting”
The COVID-19 pandemic has highlighted a significant problem with contracts, as revealed by a report released by World Commerce & Contracting (WorldCC) and KPMG Law, entitled Can the contracting process improve without an owner?
For decades, organizations have tried to simplify the contract process―testing and implementing contract management tools and systems, but to little effect. Now, as digitalization gathers pace, streamlining the contract process is a major priority. As the report makes clear, this issue is not isolated to one business or industry type. It is a global problem that is slowing organizations down.
“Contracts directly impact the health and wealth of every organization. Yet, for all their importance, on average, contracts suffer more than 9% value erosion,” says JasonMcQuillen, a partner in KPMG Law in Australia, head of its Legal Operations Transformation business and report co-author. “They only gain executive attention when things go wrong, and the focus is on who to blame. The dominant, widely acknowledged reason for this is simple: no one owns the contract delivery process.”
Only 10.8% of organizations consider their end-to-end contracting process to be “very effective.” As one research respondent commented, “Getting a contract is like having a root canal.” Cost was also an area of contention among respondents, with the least efficient processes reportedly averaging more than US$10,000 per contract, simply for reviewing and processing activities.
Tim Cummins, WorldCC President and report co-author, comments: “Contracting has never been addressed effectively. The report highlights a clear frustration with departments involved in the contracting process, lengthy cycle times, and CEOs believe they are losing money.”
Focus on digitalization
Digitalization of the contracting process is now a priority for 76% of respondents, yet only 26% of respondents believe that their technology team is well equipped to support their digitalization initiative. Digitalization alone cannot fix the broader issues.
“I’m optimistic that the impact of the pandemic will encourage organizations to change things, and digitalizing contracting is now a business priority,” says Nicola Brooks, Director for KPMG Law in the UK, head of its Legal Operations Transformation business and report co-author. “But most organizations will not succeed by focusing on this in isolation. Rather, to succeed, organizations need to have an operating model as part of this.”
What’s the solution?
The report concludes that sustained progress and improving the quality of the contracting process depends on achieving a single point of process ownership and accountability. WorldCC and KPMG Law say that introducing an ‘Office of Contracting’ within each organization is the solution to tackling a fragmented and costly process. The OOC would be asmall group responsible for all contracts across the enterprise and the process surrounding it. They would work in harmony with the multiple functions, coordinating and coalescing.
StuartFuller, Global Head of Legal Services at KPMG, concludes:“The WorldCC and KPMG Law report shows that there is a clear problem in the contracting process. The solution needs clear ownership within the organization, and external support from trusted advisers with real, global experience in this critical area for business, who can drive value creation and end the value erosion.”
About the research:
The report is based on input received from a series of round-table discussions and an on-line survey conducted by World Commerce & Contracting in the period from January to March 2021.
More than 40 executives participated in the roundtables and shared their views on the key trends in commercial and contract management. This was supplemented by input from more than 300 survey respondents, together representing a range of industry and geographic perspectives and size of organization. While taking account of all responses, the report focuses primarily on the 200 organizations with annual revenues of more than US$500 million since the complexities being examined are strongly related to the size of the business.
About KPMG International
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. We operate in 146 countries and territories and in FY20 had close to 227,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. More: home.kpmg.
About World Commerce & Contracting
World Commerce & Contracting is a not for profit association and the only global body promoting standards and raising capabilities in commercial practice.
The organization works to inspire individuals and organizations through research and ideas and equips its members with knowledge and networks that support successful contracts and commercial relationships. More: worldcc.com
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