Damco International B.V.
Author: Tim Cummins
As someone running a small business, that quote, "contracts aren't much use to me", might be mine - but actually it isn't. The comment came from a project manager responding to the recent IACCM survey that explores the purpose (and effectiveness) of contracts.
Overall, the survey shows that those who draft and negotiate contracts are aware of the diverse purposes they serve. They are communication tools, methods of allocating and managing risks, a vehicle for establishing roles and responsibilities. Interestingly – and of concern to some – is the relatively lowly rating of the contract as “an instrument for generating financial benefit”. The fact that this purpose comes so low on the overall list is remarkable when you consider that the key drive behind relationships and transactions is economic; without financial benefit, contracts would not exist.
But what about our project manager? He spoke for many of the operational staff who responded to the survey, reflecting a degree of cynicism about the role and purpose of contracts. In his experience, contracts often fail to give effective operational guidance. Although it may be intended to offer definition of roles and responsibilities and a governance framework, many times the contract is ineffective. That may be because it is incomplete, or perhaps simply too complicated to read and understand.
In fact, many of those responding from Legal or Contract Management roles do not entirely disagree. They too reveal a substantial gap between aspiration and reality. One question in the survey asks whether a contract should provide the framework for a mutually successful business outcome. While over 60% strongly agree that it should, only 11% feel that is what actually happens.
So unfortunately, our project manager is right to be disapppointed. But doesn't he deserve better and could we not do more to make our contracts truly 'fit for purpose'?
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