On today’s episode, Linda Tonkes, Author and Managing Director at CM Partners, is joined by Gary Zuder, VP of Sales at Malbek, to discuss the impact of pre- and post-award contract management on organizational agility. Linda shares how contracts are nothing without context before signing and the actions you take after signing. She describes the steps you should take in the pre-award phase to ensure success and then explains why you need to expect change and who to involve so you can adapt quickly. Knowing contracting is a cycle, not a linear process, Linda then wraps up the discussion by sharing how renovating a kitchen is like getting started with contracts. Hint: it’s all about who you are building for! So, grab a glass of wine, and let's talk contracts!
Intro:
Welcome to the Contract Lens podcast brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders and practitioners about everything contracts and its ecosystem. In today's episode, we discuss the connection between pre and post-award contracting and what that means for agility. Leading the discussion is Linda Tonkes, author and managing director at CM Partners. Another loose based contract management consultant firm. Linda's mission is to prove how contracts form the basis for good business, and why contract management is a necessity for good business. Her bestselling book, CATS CM: From Working on Contracts to Contracts That Work, has remained a staple in establishing contract management as a strategic business instrument beyond the legal sphere. So now, it's time to relax, grab a glass of wine and let's talk contracts.
Gary:
Hi Linda, how are you today?
Linda:
I'm fine. Thank you.
Gary:
Awesome. It is such a pleasure to be speaking with you today. And we've met briefly before in an introductory conversation, but we've made light of the fact that this is not something that during an average dinner party, that people talk about, contract management in general, but when people go find each other that do this for a living or are passionate about it, it makes for great conversation. So once again, we appreciate having you here today. Thank you.
Linda:
You're very welcome.
Gary:
Linda, the title of our session is, It's the Link Between Pre and Post-Award and Contract Agility. And there's so much to, as they say, unpack in there. Before we go into that exact title, when we look at contract management as a whole, that the entire industry is evolving. We're seeing legal operations now in, not only large organizations, but mid-size organizations. But, as we define contract management, some people think it's document management, some people think it's about digitizing their contracts. Can you tell us what your view of contract management is at the very highest of levels?
Linda:
At the very highest level, Gary, contract management for me, is making sure that every contract you have gives you a strategic advantage. So it will either contribute to your mission and your vision, or it will contribute to your complying with rules and regulations. So basically contract management is making sure that the contract objectives, which are directly linked to where an organization is going, are realized during the full contract execution. And in order to do that, you need to take the full contract life cycle in mind.
Gary:
Exactly. And I've read some things that you have published about the cycle versus the straight line. So, once things make its way through and we're extracting key terms and conditions and taking action on those, it kind of goes back and starts all over again. So, how would you define the cycle versus what people might traditionally call a straight line in contracting from pre-war to signature and be done?
Linda:
Well, if you look at... The contract itself, of course, is not a cycle, its something with a starting point and an endpoint. It's clear thing. But if you look at what it's covering, it's meeting a business needs, whether you're on the sales side or whether you're on the procuring side, you're meeting a business need and a business need is continuous. And that actually has a cycle. You need it, you purchase it, it evolves, and the next purchase maybe needs some changes. So, that's where the cycle part comes in. And, around that cycle of fulfilling your business needs, there are a number of processes in place. And these processes, of course, for one contract form is a straight line. But if you look at it from a continuous operating perspective, it's also a cycle. And there's also a link between that one single contract and the bigger picture your organization is working in. So for instance, a supplier management or business management. So, that's where the cycle part comes in for me, Gary.
Gary:
That's a great distinction about the contract itself versus the business around contracting, so to speak. So, let's go into the title of the session a little bit in terms of the pre-award phase. Now there's clearly many moving parts during a pre-award. So what are the most important criteria, in your opinion, that organizations should consider in that pre-award phase? As you're seeking out to develop relationships with vendors, with suppliers, with your customers, what are the things that people should consider in the pre-award phase?
Linda:
Well, you should consider how you want to manage the execution. Do you want to manage that fully proactive on a regular basis? Or do you want to do it from a more distance? And in the pre-award phase, you actually prepare for the full contract execution. Not only for the moment the contract is signed. So you need to take in to account the full periods, the contract is going to be executed, and think about, okay, what am I expecting to happen there? Are things going to change if you're in a technological space, if you're in the IT space? Things are going to change in the coming months. Don't talk about coming for years. And if you know things are going to change, you need to prepare for that change. Your contract needs to take into consideration that there are inevitably going to be changes that you cannot predict today.
Linda:
So that's one thing, how much do I expect to change? And the other thing is, what am I actually selling or buying? Is it something that the other party still has a lot of influence on, or is it fully me, and to what do I need to manage that contract? Let's say you're on the buying side of things. You're procuring something. You're procuring cleaning services. It's a total different world, whether you're buying and you're hiring people to do the cleaning for you, and you tell them what to do. Or you tell your supplier, well, please give me clean buildings that lead to a customer satisfaction of level X. In the last case where you say, okay, I'll make you responsible for what the outcome is, what the effects of that contract actually is, you don't have anything to say about how they're going to do it.
Linda:
And actually, contract management is your main tool in making sure that contract contributes to your organizational goals. If you look at the first example, if you hire people, you will still have a lot of influence during the contract execution on what activities they're going to do, or how they're going to prioritize their work. When are you going to change schedules? When are you going to change activities? And you can maybe scale down a little bit on track management, because business management is more intensive. So, that's the things you need to consider. What type of thing am I actually contracting? Is it an input level contract? Is it fully related to effect or outcome of what I'm buying or what I'm selling, and how many changes do I expect during that contract period? How agile do I need to be? And I think that's where pre-award comes in and that's what you need, where you need to prepare for.
Gary:
Thank you, Linda. What I heard there was, as you are working through the pre-award phase, it's an extra [inaudible 00:07:33] linked to the post-award execution and in the longterm of the contract. So be thinking about those long-term items or even consequences or business outcomes that you're looking to achieve right from the beginning. And it brings me to another question about who should be involved in the pre-award phase? A lot of times, in my career, I've been a salesperson for many, many years. And oftentimes legal is sort of pulled in, in terms of help to execute a contract, when a lot of the business outcomes maybe have already been predetermined. And I didn't know if you had any comments on who should be involved right from the beginning as you're looking to make an impact on your business, whether you're buying or selling, and how you get that collaboration in the early phases.
Linda:
Well, there's one role that's actually crucial to involve, and that's when you're on the selling side, is the delivery owner, when you're on the procuring side, it's the demand owner. Your primary link to your business, that contract, is going to fulfill a need in the business part and the operations part of your organization. So, that person needs to be involved. And of course, you have procurement or sales specialists who can make sure that the best contract document is there. They also need legal for the considerations around the terms and conditions. And if you look at legal operations and contract management, the more necessary contract management becomes, the more you expect that you need to change, twist and tune during the execution, the more important it is to have them involved in the pre-award phase and actually have a say in it. So not to be confronted with a set that is already predefined and say, okay, you can make two changes and that's it.
Linda:
There needs to be a multifunctional team going around, making sure that everybody brings in their expertise, so that at day one, the best contract that you can have is on the table, but also a contract that has the ability to stay the best, during the execution.
Gary:
Again, in terms of the purchasing side, again, it's the same concept.
Linda:
Yeah.
Gary:
Okay.
Linda:
So, yeah. You have a demand owner there. That contract is fulfilling somebody's business needs. We need that cleaning service, or we need IT. That is part of somebody's day to day business. And that person is actually really involved in the contract and you need to have them there. And he, or she, needs to be aware that there are specialists in the organization who together, who combines, can make sure that the best result is on the table. And of course you need your procurement department there. Of course, you need sourcing. Of course, you need legal, and you also need contract management, especially when you know that you are going to work in a contract that needs highly intensive contract management, because that's your only tool to control things. And you expect a lot of changes and it becomes more and more important. So what I see more and more are multifunctional teams in the pre-award phase, collaborating to make sure that the best document is there. The best document in texts, the best document in specs, and the best documents to be managed during the execution.
Gary:
That's actually a perfect segue. Everybody has the best intentions when we're drafting contracts. And everybody's very, very pleased at the end of the negotiation, that they are confident they have a mutual, workable and positive agreement. And then, what happens after a contract is signed, as you mentioned earlier, things absolutely change, whether it be the economy, whether it be personnel, the company itself, the industry, all these different things change. And so many times historically, contracts get signed and put away, in the virtual drawer. So, as you look into post-award, I would like to talk about now is, how might this be measured on a go-forward basis? And we'll take these from different perspectives, because the general counsel is to protect the organization. That's paramount. So, let's talk about it from a risk perspective. And then maybe later, we'll get into sort of some of those business drivers, as well.
Linda:
To react to your statement about first protecting your own organization, I think that's shifting a little bit. I think the awareness is becoming more and more clear that you cannot do things alone. You're getting fully dependent on the other party in your partnership, to make things a success. So protecting only your own organization is not going to bring you very far, especially since you're in a world that changes constantly. And if change is constant, you don't know what's going to happen in the next year, you will definitely need each other. I see a little shift there, but it's not going as fast as I would like. So, if you look at it from a risk perspective, what I see a lot is that people focus on the risks around the performance and forget to look at that first thing that I said, every contract has a contribution to your mission and vision and a contribution to your compliance, whether you're compliant with laws and regulations. You need to keep the bigger perspective in mind, because if change happens, it will happen there.
Linda:
So you actually also need risk analysis compared to that. So what are the risks regarding my contract objectives? And that can be, of course, return on investment, but it can also be sustainability. It can be safety. It can be net promoter score. I want to be the customer of choice. I have some strategic goals there, and every contract has a contribution. And for me, good contract management takes into considerations the risks that threaten those objectives. And of course they are linked to performance, but performance will definitely change, because the way we do things changes. So looking at risk level, a risk management on a performance level only, is it too limited few to make contract management a real strategic driver.
Gary:
Linda, that is such an amazing point. I'd like to go into that even further about the general counsel, looking to the partnership that the organization conducts with other parties and realizing that yes, of course, I need to protect my own organization, but having some empathy in mind for the other organizations that we're doing business with. Can you tell us just a little bit more about that? Because again, as you mentioned, the shift is not happening as quickly as you would like from sort of that traditional view. So I'd really like the listeners to understand what that means by not moving as fast as you'd like, and having some more respect and empathy for again, the people that you're doing business with. I think that's a fascinating point to expound upon.
Linda:
If you look at the world we're operating in, you see a number of things happening. And one of the things you see happening, is that everybody goes into an extreme mode of specialization. So everybody is responsible for only a real small part of a complete chain. And they are really good at that real small part. Only that small part will do nothing without something that comes before it, and it will affect the things after it. And those are your suppliers and your clients, because contracts are on both sides of your organizations. So if you actually want to bring as much value to the chain as possible, you need to know that your suppliers are happy to supply with you. If they think of something new, they want to come to you first. If they have limited stocks, they want to deliver to you first. You don't want to say, okay, you are a really terrible client. I don't want to work for you. I'm not coming anymore. Figure it out. Because you cannot do it yourself anymore, since you specialize so much.
Linda:
Same goes, of course, in your selling contracts, you are contributing to another party, and that other party is inevitably going to change. So you need to be interlinked there. And because you don't know what the change is going to look like, you cannot base your work there on historic data, or that sort of thing. You need to know what the human interaction is. If the other party is still happy in working with you, or if they will go another way. And if they will go another way, well, actually the small part of specialization that's yours, can be, well, obsolete very quickly, because somebody else is going to do it. So I think if you look at the world as an ecosystem of contracts, instead of traditional legal boundaries of company, you need to work together. I think we're going to move from not only, we want to be a great place to work, but we also want to be a great place to supply. Because face it, the people of your supplier, work in your organization.
Gary:
Exactly, exactly. Once a customer told me that the contract is the most intimate part of the business relationship. You know, it's not just a piece of paper or in the virtual world, a virtual document, it's a living, breathing relationship that really helps each other succeed. So that's a wonderful distinction, and hopefully that connotation catches on as we move forward with rejuvenating the space, in general.
Linda:
We have to make a little word joke here, and we say, okay, if you take the letter R out of contract management, you get what it's really about, contact management.
Gary:
Exactly, exactly. That's brilliant. So I'd like to shift the topic again as we turn the corner here, to organizational agility. Something, I know that you're very passionate about, something that you've written about, talking about contract management as an ecosystem, about the collaboration of people. So can you tell me in your definition, how do you define agility as it relates to contract management?
Linda:
Well, if you look at organizations that work in an agile way, so let's take agile as a concept there. And if you look at contract management also as a concept, they have a real, a common definition, and they are both about realizing your goals, instead of focusing on what should we do? We focus on where will it bring us? And I think that's where contract management and working agile go hand in hand. And I think the better you make sure that the contract contains the elements that allow you to, well, shift during the execution, go a little to the left, go a little to the right, as long as it contains these elements and you prepare for this, and you are aware that the change is going to come, it will help you. And that means even if you make a strategic change saying, okay, I have a new business goal, or we're going to leave that as an objective and not do it anymore.
Linda:
You need to be able to make sure that every contract that has a contribution to that, is changed in accordance with it. So linking contracts and their objectives to your organizational goals, is crucial in realizing this. So, agility is making sure you know where your contracts contributes to your organizational objectives and making sure that when they change, when you expect them to change, your contracts can move along.
Gary:
If I look at this from a general counsel's perspective, and I've read recent articles and blogs about, gee, maybe we should even change the title, general counsel. If I'm a general counsel, I'm listening to this, and yes, I want to be a business partner. Yes. I want organizational agility as it relates to contracts. And I have a meeting with my CEO next week. And my goal is to talk about organizational agility, because that's not something that can exist in a silo. It has to have buy-in from everybody. What kind of messaging would I give in terms of one, to be more of a business partner?
Linda:
For me, that conversation starts with what I told you about the organizational goals, and then of course, the first question that you will get is how do I do this? How do I make sure that everybody works with the goals in mind? Well, I think there is something to be said there. I think the most important thing organizations can do is make sure that the capacity they have in people performing work, is utilized as much as possible. And for me, that means that all the basics, all the hygienics are there. And we're talking about hygienics, everybody thinks of a contract repository and saying, okay, we have all the documents in place and we're done, everybody has the data they want, or they need. But it goes one step further, because what also really contributes to making sure your people can work their best, can be their best, is making that container.
Linda:
Contract management is used as a term for a lot of different things. Making sure that you build it up with a common language saying, okay, this is what contract management is. These are the key activities in it. These are the roles involved. The more you standardize that common language, the more you give people the room to do what they're really good at. And people are good at entrepreneurial things, taking risks, having empathy. And when they can use these capabilities for 90% of their time, because everything is in place and we know what we're talking about, you get a much bigger effect than maybe when they do it for 40% of their time, because they are 60% of their time working on finding the contract, making sure they have the latest version, seeing if the right things are on the right meeting schedule, et cetera.
Linda:
So take time to manage your contract hygienics. Make sure that you have a good process in place, which is build up with a common language, so you can also ask your counterpart to use, makes it even work better. But I think that's what the C-Suite should think about. How do we give our people the tools to do the best they can? And the best they can is in the human capabilities. You understand what I mean?
Gary:
Indeed. Common language, common definitions, common goals, get everybody speaking the same language. And then they, as individual leaders throughout the organization, can then do what they do best to contribute to that when they know what the overall mission is and know how important it is and why it's important. You talk about contracts, people and systems and process. We've touched on all of these and how do organizations scale? How do you scale? What kinds of people do you look to in the organization to help you transform contract management into the business idea that it should be?
Linda:
Well, if you want to scale your organization, you need to first think about scaling contract by contract, by contract. Because we all know that there are contracts that need well, a basic level of attention, which can be rather administrative, and we all know that there are contracts there that need full attention. And that's the first step in scaling, knowing for what type of contract you're going to do what. If you know for what type of contract you're going to do what, you can also define the set of capabilities that you need to do the work. So, that means that you can have a clear picture of what the capabilities are that the person's doing, contract management, people involved there, what they need to be able to do. And that means that a contract that needs to be managed in a highly intensive way, will probably require somebody that has more negotiating skills, communicating skills, than contracts that is relatively basic, and it's just documenting the contracts, making sure finance are in order and maybe have a meeting, or read report every now and then.
Linda:
You need a different skillset for that. And if you want to scale, you need to make sure, where are you going to focus on contract management, and when you're not going to do that. And if I look at my daily practice, I see a lot of organizations that say, okay, let's take a contract value, and for the biggest ones, we will do full and highly intensive contract management, and the smallest ones we leave aside. But actually, there's a big gap there. Because I know of contracts, which are relatively small in monetary value, but which are mission critical for a company, and the other way around. If you think about a contract for temporary personnel, most of the time a large amount of spend is involved, but is it the most important, most crucial contract in your organization? Well, most of the times it's not. So taking the contract value as aligned to scale your contract management, diversify your approach, is not the right type for me.
Linda:
I think you should look at what type of contract you have, looking at it from a process perspective. If you look at a process, and every contract fits into a process, every process has an input, with something in there, you perform activities, there's an output. And with an output, you want to realize an effect. And somewhere along the line, a contract is dispositions. You can specify input, but you can also specify effect. And the more you shift to effect, the more important contract management becomes because that's your only steering method. And I think that's where you need to scale. Then you know how many contracts you have of what type, then you know how many people you need, then you give them a common language, and then they can fly.
Gary:
In looking at the overall scalability on a go-forward basis, I think people are keen to understand that there are tools out there. There are best practice processes they can follow. Do you have any advice for how do I get started? You know, it's almost like you're remodeling the kitchen, right? You take everything out, you put it in the garage, and now you have the task of understanding what's most important as I start to find those agreements that have the most impact to my business, whether it be from a revenue perspective or the risk perspective or the compliance perspective.
Linda:
Oh, let's take the remodeling a kitchen as an example. I like that. I love [inaudible 00:26:17] [crosstalk 00:26:17].
Gary:
Okay, sure. Perfect.
Linda:
What's the purpose of that kitchen? Do you want to make Michelin star quality food? Or do you want it to be a nice, comfortable family place where everybody comes together? For the first, focus is on your equipment contracts. You need state-of-the-art equipment, state-of-the-art knives, state-of-the-art countertop. Last situation, if you want a cozy family kitchen, you can maybe deal with a good quality, but not state-of-the-art equipment, but you need comfortable chairs, and you need to make sure that everybody has space to do their homework, play games, or, that's a total different concept of a kitchen. I think you should consider what's crucial for you. And that's when you know which contracts are most important. And this is basically in line with the mission and vision board. Because in the first case, my mission envisioned was to be a Michelin star kitchen. And the other mission and vision was to have a nice, comfortable, welcoming atmosphere in a family home.
Gary:
Certainly, and as I look at this, as you look at the kitchen analogy, she's getting me hungry, by the way, but talking about that, [crosstalk 00:27:28] that's okay. Looking at kitchens, we understand how you want to use the kitchen. What's the purpose of the kitchen. And I think what's probably a great takeaway for everybody listening is that one size does not fit all. You know, what is the mission and vision of the organization? What are we in business to do? What is most important to us? Might there be revenue leakage? All of these different things, that I think we have to assess from a business perspective, before we even lift a contract and start to understand what might be in it.
Linda:
Definitely. And then you can say to your kitchen builder, build me a Michelin star kitchen, or you can tell him, I want six cupboards. I want that kind of stove. I want that kind of oven. I want to... what can we use in a Michelin star kitchen? Well, I don't know, but everything you want. And pretending that you know better than your supplier or you can ask him, okay, I want Michelin star quality, what do you advise me to do? And that's the difference between an input contract. I will tell you what to do and where its good at, and the outcome or effect, I don't care how you do it, but make sure it fits my needs.
Linda:
In a less situation, where I say, "Okay, I don't care how you do it but it should fit my needs, within the budget, of course," then contract management becomes more important, because you cannot steer on the activities anymore. You do not control the building itself. You do not control the choice of the equipment. You only control, if you like, the outcome, if you like the effects. And then you need a different type of managing the relationship and then contract management really becomes essential.
Gary:
Well, the overarching thing for me is, it's about the business and it's about the people. And I think if we do it in those kinds of basic building blocks, everything else stems from that. So, Linda, I know that we are on different continents, you in the Netherlands, I'm in the States in Ohio. But if we ever have the opportunity to have that virtual kitchen to make that dinner and then have a conversation, that would be my pleasure.
Linda:
We're going to do that. Definitely. If you're here, if I'm over there. Give me a call.
Gary:
Indeed. You never know. So, Linda, thank you for this time. And I have to ask, as you have all of this insight, all of this expertise, where can people find you? How can they reach you?
Linda:
People can find me on LinkedIn. So if you go to Linda Tonkes there, connect with me, I'm open to connect. You can find the methodology where I base all this vision and ideas on the methodology, it's called gets CATS CM. You can find it online at www.cats-cm.com. Actually, we provide you with an overview of the common language there. There's a book out on the subject also, that's also available in English, so you can read about it there.
Gary:
Wonderful. Linda, thank you again, so much. I've enjoyed this immensely and thank you for sharing your expertise and wisdom for our audience today.
Linda:
You're very welcome. Thank you for inviting me, Gary.
Gary:
Of course.