Bradley Martin, SVP Vendor Risk Management, Bank of Hope
We all lose when we ignore the Enterprise Contracts Management (ECM) process; even worse, we all start the process late in the lifecycle. The goal of most ECM workflows is to inventory and maintain a call-to-action process. That is, an inventory of all your contracts with a notification of effective dates, payment terms, performance monitoring, and termination dates, etc. These are all very important items to track; and yes, prepares you for re-negotiations when the time arrives. But you lost the most important advantage when you started the ECM process with the contract request from your business owner. You lost the ability to anchor.
Given my background, I’ll approach this process from the buy side of the business. However, the fundamentals can be applied to selling. Both sides need a contract; and anchoring is a concept I learned from the sales side. It was a process I understood innately but only recently learned to put a name to it; Anchoring.
The ECM process should start the moment your business owner identifies a need that requires a third party. You as the owner of the ECM process need to make certain the business owners are well trained, so when they reach the point of contract request (likely where your ECM software application starts the lifecycle) the business owner has properly anchored expectations with the vendor.
The goal of most ECM workflows is to inventory and maintain a call-to-action process
Anchoring, is stating your position first; often stating how much you will pay to buy something. Yes! You need to put the number out there first. Forget the negotiation training you have learned. You really do want to name your price point first (keep it low if you’re the buyer, keep it high if you’re the seller, but never make it unreasonable). You also need to remember there is more than just price at risk. You need solid terms. You will want strong service level agreements with financial remedies. You will want the correct indemnification along with both, a meaningful floor and ceiling on any limitations of liability. Plus, you need granular details regarding acceptance criteria, especially for those large software deals.
Anchoring these concepts with your vendor early is very much a part of the ECM process. You should set a level of expectations early and work through the negotiation process to anchor those expectations keeping flexibility in mind. For some, this may seem confrontational; it may even challenge the concepts of win-win negotiations. However, I have found if we start with a well-grounded (firmly anchored) position with the vendor and work through the conflict as part of the negotiation process, the success of the project rises. That is, the contract and the supporting project or purchase behind the contract has a greater chance of success because the parties worked through the conflict and came to an agreement. The added benefit is if there is a challenge not originally foreseen the parties have stronger interpersonal relationships and can come to a compromise faster.
This makes for a stronger starting point in your ECM process.
To re-tool your process, start with contract standards. Using a risk based approach you should set guidelines on the essentials to be included in a contract. You may even consider drafting your own boilerplate agreements or establish contract riders or amendments which your business owners can use as a starting point to anchor those critical items in your agreements.
Keep in mind, there are a few stages which the process may not provide decent controls. If the business owner is coming to you with a contract request, they have likely already started the negotiation process with the vendor. You need to learn as much as you can about what has already been discussed with the vendor. If you have trained your business owners they should come to you with the anchored position. As the contracts manager or buyer, you now have a stronger position to finalize the agreement. If they are not trained recognize they may be embarrassed to say they gave away the farm, because the wine at dinner with the vendor was just exceptional. Be gentle; re-read how to win friends and influence people; and find the teachable moment.
As the ECM process owner, understand documentation and guidelines you provide the business owners will end up in the hands of the potential vendor. When you set your contract guidelines there will be those time-driven-must-have-it-now business owners who will simply punt your standards to the vendor and say something like, “Your contract has to meet these expectations, see attached.” My guidance to you is when writing your contract standards keep this in mind; it might actually help you with the vendor.
We want to start the ECM process with a strong contract. We will only arrive there if we anchor first.