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KPMG report highlights serious contracting issues
A new report has highlighted a significant problem with contracts and found that a high number of organisations have ineffective and fragmented contracting processes.
Lauren Croft
In collaboration with KPMG Law, World Commerce and Contracting (WorldCC) surveyed executives from across the globe for the report, which showed that only 11 per cent of organisations believe their contracting processes to be “very effective” – and almost 90 per cent said their processes were ineffectual.
“Contracting does not work efficiently. It is costly, it creates delay and, too often, it fails to build the trusting, collaborative relationships on which modern business depends,” the report stated.
“The dominant, widely acknowledged reason for this is simple – no one owns it. There are many who lay claim to portions, but none who accept accountability.”
Whilst organisations have attempted to simplify the contract process for decades by testing and implementing contract management tools and systems, it has had little effect, according to the report. It emphasised that the issue is not isolated to one business or industry type, but a global problem that is slowing organisations down.
Jason McQuillen, a partner in KPMG Law in Australia, head of its legal operations transformation business and report co-author, said that contracts are too important to organisations to have the problems they do.
“Contracts directly impact the health and wealth of every organisation. Yet, for all their importance, on average, contracts suffer more than 9 per cent value erosion,” he said.
“They only gain executive attention when things go wrong, and the focus is on who to blame.”
Cost was also an area of contention among respondents, with the least efficient processes reportedly averaging more than US$10,000 per contract, simply for reviewing and processing activities.
Tim Cummins, WorldCC president and report co-author, commented that: “[C]ontracting has never been addressed effectively.
“The report highlights a clear frustration with departments involved in the contracting process, lengthy cycle times, and CEOs believe they are losing money.”
Whilst 76 per cent of those surveyed said digitisation of the contracting process is now a priority for them, only 60 per cent believed that digitisation will result in single point ownership and accountability. Furthermore, only 26 per cent of respondents believed that their technology team is well equipped to support their digitisation initiative.
Nicola Brooks, director for KPMG Law in the UK, head of its legal operations transformation business and report co-author, confirmed that whilst COVID-19 has motivated organisations to become more digital, a separate operating model is needed to improve upon fractured contracting processes.
“I’m optimistic that the impact of the pandemic will encourage organisations to change things, and digitalising contracting is now a business priority,” she said.
“But most organisations will not succeed by focusing on this in isolation. Rather, to succeed, organisations need to have an operating model as part of this.”
The solution, the report concludes, is dependent on achieving a single point of process ownership and accountability – which will improve the quality of the contracting process and sustain it.
WorldCC and KPMG Law said that introducing an OOC within each organisation is the solution to tackling a fragmented and costly process and assigning ownership and responsibility to the contracting process. The OOC would be a small group responsible for all contracts across the enterprise and the process surrounding it.
Stuart Fuller, global head of legal services at KPMG, said that this solution was a clear way forward.
“The WorldCC and KPMG Law report shows that there is a clear problem in the contracting process,” he said.
“The solution needs clear ownership within the organization, and external support from trusted advisers with real, global experience in this critical area for business, who can drive value creation and end the value erosion.”
Lauren Croft
Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.
