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Managing the uncertainty in contracts with a shared approach

Managing uncertainty in contracts with a shared approach

on May 17, 2022

Most of our actions and decisions involve others, inside and outside any organisation. The best solutions come from working together and the pandemic caused many people to appreciate the extent of our interdependency.

Establishing a win-win collaboration framework would increase communication and clarity within a network and with suppliers. Developing a solution together, based on shared input and mutual respect, generates a collaborative environment that simplifies coordinating and reconciling multiple opinions.

Different groups and functions typically reflect different interests, and rarely organisations speak with one voice. A clear objective and shared measurable results are particularly challenging in contract managing and procurement activities. Building strong relationships with suppliers and networks is a key to success as it builds up relations and consolidates trust.

Within a collaborative environment, suppliers would be able to receive feedback to improve and a business would better monitor processes and make them more efficient, increasing the ability to operate flexibly and at speed.

An innovative approach would reduce the margins of risks and costs, transitioning the procurement process to more efficient practices that lead to effective results without wasting materials, time, or energy. Strategic thinking is needed to reach the desired effective outcome, defining clear objectives and measurable results.

Streamlining the contract managing process would allow any business to identify sources of value to better manage risks. A shared approach would help to manage the uncertainty in contracts. Effectiveness may vary over time as the procurement environment adapts and evolves.

Managing risk lies at the core of contract management as it is consistently considered as one of the main purposes for having a contract.
Many contracts lack balance as they do not fully address issues of risk probability like a change in market conditions or poorly defined requirements.

This means that the resolution of many of the events that occur post-award depends on the strength of the relationship between the parties and on the attitudes of the individuals managing that relationship.

Negotiating relationships is a process with no clear beginning or end. Relationships are dynamic, not carved in stone. The goal is to build enough understanding, comfort, and trust between parties to be able to work together now and in the future, under conditions that would enable both sides to prosper.

Almost 65% of organisations are now re-evaluating the way they go about contract management and over 70% are examining where value can be gained through improvements. These improvements can only be achieved through technology.

What is blockchain and how does it work?

Blockchains are digital ledgers where several people have joint control over the shared information. A feature that makes them ideal for situations where trust and information sharing are important as the relationship with suppliers.

The design of a blockchain doesn’t allow anyone to change the contents of the ledger without approval from all the other parties. Smart contracts, integrated on a blockchain, are program codes that are automatically executed once certain conditions are met.

A significant benefit of using blockchains and smart contracts in the execution phase is the automated enforcement of agreements and the resulting decrease in double-dealing behaviors. Blockchain technology can also speed up the process and reduce the costs of settlement by enabling a shared and single truth for all participants. But how to integrate our processes and contracts into blockchain? How to streamline the process and make it accessible to all companies?

Trakti, our end-to-end contract automation and management platform, can support the entire life cycle of contracts by allowing your business to establish a win-win collaboration. Thanks to the power of blockchain, Trakti can automate the negotiation, contractual, and management phases of your business. Trakti streamlines and simplifies negotiations with counterparts, facilitates communication and clarity as information is shared among team members in a trusted and shared ledger.

With a user-friendly no-code platform fully customizable as Trakti, you can integrate all your business processes. For example, you can use a rating and evaluation system fully integrated with your contractual procedures and record the result of the rating process in the blockchain without any privacy breach. Furthermore, you can simplify supplier checking, tracking, and auditing during and after the onboarding process, as Trakti provides KYC and AML integration with third-party services.

In complex environments, uncertainty introduces change and emergence that is often not contemplated in the contractual risk allocation framework and procurement documentation. Dealing with uncertainty is something that is often overlooked in contract management. 

Uncertainty can create significant challenges including increased costs, delays, and force change in delivery methods. A collaborative approach can realise benefits even when new, significant risks and issues emerge, providing maximum flexibility to cope with changes.

A formal relational contract specifies mutual goals and establishes governance structures to keep the parties’ expectations and interests aligned over the long term. Collaboration allows opportunities to be recognised and exploited when circumstances change and is necessary to ensure a seamless closure of the project, reduce disputes, and capture lessons learned. To keep expectations aligned in a complex and changing environment, both parties need to explain their vision and goals.

With Trakti you can adopt a shared approach to make more collaborative contract principles and effectively manage radical changes in scope with or without the usage of blockchain.

The contracts we are creating are relational, not unilateral, but multilateral.

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