As we migrate towards automated contracting approaches, we will be better positioned to embrace iterative contracting models. The current model, due to resource constraints, follows a path of drafting, negotiating, executing/signing, managing and finally renewing or closing out the contract. Depending on the term of the contract, the manage phase will typically last between one and five years – with a few amendments along the way.
Some argue that excess amendments make the contract more difficult to manage. While that might be true under the traditional manual model, things will change under automated models.
- Gaps will be filled
- Ambiguities will be clarified
- Scope will be expanded and narrowed more often
- Conflicts will be resolved quicker
- Value will be generated
What is an Iterative Contract? As the name implies, the contract evolves over a series of minor modifications. It evolves over time. However, governance and compliance are not ignored. It is much like an extension ladder. There is rigidity and strength to the ladder, but it is flexible and adaptable. As the elevation and wall changes, the user can extend or shorten the ladder. There is not one set of rungs for every use – there is variation. At some point in the future, a Smart Ladder will be available which automatically adjusts to the required height, angle and location against the wall. But the likelihood of integrating automation with iterative contracts is greater in the near future. In fact, with some enterprises the future has already arrived.
Under the iterative contracting approach, the language will be changed on a more rapid and frequent basis. Contracts which are “Fit For Purpose” usually experience higher yield rates – in either the contract document or the corresponding commercial relationship. In order to ensure the congruence between contract and the underlying requirements and relationship exists (or arise when it does not initially exist), the contract cannot and will not remain static. The contract will need to go through multiple iterations as the project, relationship and requirements change. The automation tools brought into our commercial contracting toolbox will enable iterative contracting to occur with greater ease, effectiveness and efficiency. We must avoid embracing the paradigm that a contract is written once and remains unchanged for the duration of its term. Those who embrace that paradigm will fall short in establishing a competitive advantage and will experience lower yields from their contracting assets.
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