I was recently speaking at the IACCM Australasia Forum in Melbourne, where the latest top terms in negotiation were announced. The figures showed (similar to previous years of the same study) a large disparity between the terms ranked as the most heavily negotiated, versus the terms that were ranked as the most important.
The top 2 negotiated terms in the Australasia region were revealed to be:
- Limitation of Liability
- Indemnification
No surprises there I guess?! Every person I have spoken to since the forum has agreed that they too spend a disproportionate amount of time in negotiating these types of risk allocation clauses, in comparison to other important areas of their contracts.
In comparison however, the 2 terms ranked as being the most important were:
- Responsibilities of the parties
- Scope and goals
As a lawyer, I see the results of this study played out on a regular basis. Both with the clauses we are asked to review (which are far more often related to indemnities and liability, rather than clauses relating to scope and goals) and in the types of contract problems that we see on our desk. By a very large margin, the most common contract issue that I see relates to problems with supplier performance. And often the problems in dealing with supplier performance result from a lack of detail and clarity in the drafting of the clauses relating to the scope of what the other party is required to do, and performance criteria.
So why do we spend more time negotiating terms for risk allocation, if we are assessing them as being less important than other terms that occupy far less of our time? (Indemnification for example ranked 13th in terms of importance, even though it ranked 2nd in terms of negotiation time spend).
Certainly risk allocation is an important function of a contract, but should we be ensuring that we spend at least the same amount of time (or perhaps more) on areas of the contract that might support the performance of the contract? And if the answer is yes, what can we be doing to move ourselves in this direction?
In the next few editions, we will be focusing on what can be done to streamline our approach to clauses like indemnification, and how to strengthen our approaches in using the contracting process to support high class supplier performance.
If you are interested in this topic and would like to find out more, either join us in one of our seminars, or contact us to organize a time for us to talk about your organisation’s contracting process – [email protected] or 02 8006 0830.
