2012 Top Terms in Negotiation
The International Association for Contract and Commercial Management (IACCM)'s Top Terms in Negotiation is an annual study, now in its 11th year. Collecting input from over 8000 negotiators, the study includes input from both buy and sell side practitioners, and from a wide range of industries including oil & gas, manufacturing, outsourcing, IT, among many others. The study is global, with respondents representing every trading nation.
Contracting and commercial capability have risen in importance on the Corporate agenda - and IACCM's 11th Annual Study of the Most Frequently Negotiated Terms explains why. Continued turmoil in global markets, coupled with a wave of regulation and shifting economic power, are creating an environment of increased complexity and risk, which is having a major impact on contract negotiations.
This year's study reveals changes that are far more dramatic than at any time since inception of the report. Among the highlights:
- Markets are fragmenting; major corporations are either choosing or being forced to shift the focus of their negotiation in international markets as local issues or concerns challenge standard templates.
- The buy-side / sell-side agenda has become more polarized, reflecting a growing divergence of concerns and increased focus by Legal and contracting specialists on supplier risk.
- The frequency of negotiation and of post-award claims and disputes has increased, driven by a combination of rapid power shifts within industries and between countries, and economic conditions that result in cost-cutting and adversarial behaviour.
- There are encouraging signs that negotiators are placing greater focus on terms that impact risk probability. However, there are also indications of diminished trust between buyers and suppliers, with collaboration occurring only between a select few.
These changes have significant implications for workload, skills, operational management and risk. They demand revised contract and commercial strategies and increase the urgency of steps toward 'intelligent contracting'.
Top Thirty Terms
While the top rated terms in this year's chart are unchanged, the overall rankings show greater volatility than in any year since our study began in 2002.
There are four factors of particular note in this year's Top Thirty Terms:
1. The move towards services and solutions contracts (as opposed to traditional product sales / acquisitions) is at last reflected in growing focus on clauses such as Scope, Service Levels and Responsibilities of the Parties.
2. Regulatory impacts and new sources of risk are another cause of volatility. This is not in itself new - regulatory trends always generate a short-term impact around the time of their introduction. At present, data protection / security is the big issue from a regulatory perspective, with many countries taking action in this area. New sources of risk are sometimes generic concerns, or may be driven by particular industries or geographies. For example, Non-solicitation of employees has entered the chart, driven by specific skill shortages in particular countries.
3. There appears to be a growing focus on efficiency, resulting in efforts to streamline or eliminate low value negotiation, or to establish more balanced 'norms'. Key examples are shown in the significant decline in Confidential Information / non-disclosure terms, down 10 places over the last two years, where more stable provisions supported by the use of technology have resulted in significant streamlining. Service withdrawal or termination is another area in which there is steadily less contention. Especially interesting is the shift in Applicable Law (down 21 places) and rise in Dispute Resolution (up 5 places). This requires further investigation, but appears to reflect growing use of Alternative Dispute Resolution techniques, especially in cross-border contracts (which is of course where debates over Applicable Law / Jurisdiction arise).
4. International divergence is the final area for comment. The criticality of issues certainly varies between geographies and jurisdictions (for example, Entirety of Agreement debates, or the Solicitation of Employees noted above). But there are also signs that divergence is being generated by growing maturity around the use of contracts in markets where they previously had limited significance and were seen either as unnecessary, or as administrative pro-formas. The growth of international trade has awakened many to the overall risks and benefits of contracting and leads to more push-back on some of the Western legal concepts of risk allocation, as well as the rise of significance of local issues or areas of interest. This trend is raising questions over the best approach to 'global contracts' or Master Agreements, used today in many industries to drive consolidation of supply relationships and to exert central control over corporate policies and practices.
Overall, the results confirm the need for negotiators to remain alert and informed on the traditional negotiated terms, but also to develop increased awareness of the potential for more industry or geography specific issues, as well as keeping abreast of the business and regulatory issues that affect their contracts.
2012 Top Terms in Negotiation, By Tim Cummins
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The Negotiator Magazine (February, 2013)