Inefficient contracting has led to revenue loss and missed opportunities for more than half (57%) of the world’s major companies, said EY recently.
In addition, 50% of major firms have missed out on business, according to results of a survey of 1,000 contracting professionals and leaders from law departments, procurement, commercial contracting and business development functions around the world.
The survey was conducted by EY and the Harvard Law School Center on the Legal Profession.
- Although 92% of organisations surveyed are trying to transform their handling of contracts, the majority of respondents are struggling in the face of significant obstacles.
- 98% say they face critical barriers while 38% say they have already tried to change and have failed.
- 99% are planning to reduce the cost of contracting over the next two years. The scale of their plans is also striking with one in three larger organisations looking to reduce contracting costs by 30% or more.
- Respondents indicate they are confused about where responsibility for managing contracts actually sits: 59% of legal departments believe they play the leading role, while a similar proportion (56%) of contracting staff believe they are responsible and 39% of business development professionals think they are the decision-makers.
- 70% of organisations have a formal contracting technology strategy in place and 99% say they do not have the data and technology needed to optimise their contracting process.
- As a result, there is a gap between strategy and execution and many organisations face increased risk because they are unable to measure, manage and control adherence to their policy.
- 47% of respondents say technology implementation is a major challenge and 34% say they find it hard to recruit people with the skills needed to identify and implement the technology they need.
Inefficient contracting processes
The survey results also reveals a startling gap in processes for managing contracts.
While 69% of organisations do not require staff to use a template when drafting contracts, and the same percentage do not demand adherence to any rules or guidance.
Nearly half (49%) say they lack a defined process for storing contracts after execution and almost eight-in-ten (78%) say they do not systematically monitor contractual obligations. In addition, almost three-quarters (71%) of contracts are not monitored for deviations from standard terms.
As the survey underscores, 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, said David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School.
“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,” he added.