Contract Performance Metrics: Achieving All Project Goals with Standards

This is the third in a series of 4 posts is prepared in conjunction with a work group session presented by Tim Cummins and me for the IACCM Americas Forum Conference.

The project management triangle asserts that the three principal project goals are time, cost, and quality. But, consultants claim, you can pick just two.

In fact, you can pick all three. By implementing high quality standards, professionals can deliver a high quality product, quickly, and at lower cost.

For many businesses, standards are the hallmark of their products and services. Hotel chains, such as Four Seasons, think of standards as their primary brand and hold their standards in the highest regard. By contrast, many lawyers see standards in the context of standard form agreements; synonymous with formulaic, pedestrian, and ultimately lower quality. Part of the reason for the difference is because lawyers see each agreement as requiring custom tailoring to the particular needs of the specific transaction.

Are there universal standards of optimal contracts? No, not as a one-size-fits-all principle. But, there are guidelines.

What is quality? What makes a “good” contract?

USPS published a set of measurable contract quality metrics, reorganized below in a chart. The measures falls in two groups: alignment to business goals and conformity to standards.

Alignment to Business Goals

Contracts require a complex balancing of business terms to maximize value and legal terms to minimize risk. However, there is significant value to be realized from optimal alignment. Tim Cummins observes “that contracts do indeed play an important role, representing a source of economic value for a business. Yet, 30% to 35% of an organization’s contracts underperform. That cost, he said, translates to about 9% of annual revenue.”

Each business, each contract, and each situation will have different needs making it difficult to establish universal standards. In very general terms, sellers, licensors, and providers will seek certainty in performance, while buyers, licensees, and consumers seek flexibility to adjust to changing demands and requirements.

Conformity to Standards

Building standards in such a complex environment is extremely challenging. It many cases, it is hard to see beyond the detailed language of contract terms and see the bigger picture business environment. This is where software can help. It can serve as contract x-ray machine and can see through the complexity to establish, maintain, and continuously refine standards.

We applied this approach to use technology to rapidly examine what is in a contract set. Next, working with our clients, we review the analysis and establish best practice standards, or what should be in the agreements. The refined analysis—a reference standard—can be used to build model forms, playbooks and document assembly tools small fraction of the time previously required, and with far greater precision.