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Contract Preparation and Closing

B2

Develop the contract negotiation position (for example, by identifying negotiable and non-negotiable items, building flexibility into supplier contracts to avoid lock-in and allow for agility), and understand the IT supplier's success criteria.

Improvement Planning

Practices-Outcomes-Metrics (POM)

Representative POMs are described for Contract Preparation and Closing at each level of maturity.

1Initial
  • Practice
    Best endeavours of available personnel.
2Basic
  • Practice
    Prepare contract terms and conditions on a case-by-case basis focused on a limited set of primary variables, such as cost, security, quality, and legal recourse.
    Outcome
    Whilst a consistent approach may not be evident, the basis for more generalised terms and conditions begins to emerge.
    Metric
    % of contracts that are based on the same template % of failed sourcing dealsAverage duration of a Tier 1 supplier partnership
  • Practice
    Prepare and close large sourcing contracts with some input from the procurement function.
    Outcome
    The involvement of the procurement function in contract preparation and closing benefits the large sourcing contracts by the addition of a stronger business perspective.
    Metric
    % of contracts designed in co-operation with corporate procurement
3Intermediate
  • Practice
    Adapt sourcing contracts to reflect the specific requirements and circumstances of the sourcing context, including consideration of the supplier's own success criteria .
    Outcome
    Contracts reflect the overall goal of a value-creating supplier partnership, not just a cost-saving one.
    Metric
    Average duration of a Tier 1 supplier partnership% of sourcing partners that are not meeting performance targets
  • Practice
    Ensure that contract preparation and closing routinely includes input from the procurement function.
    Outcome
    The IT sourcing contract is aligned with the procurement function and the wider organization's contracting process.
    Metric
    % of contracts designed in cooperation with corporate procurement
4Advanced
  • Practices
    • Confirm that all pertinent contract elements reflect the organization's risk appetite and strike a balance between incentivizing innovation by the IT supplier and ensuring cost-effective IT product and service delivery.
    • Consider clauses that specifically address the supplier's own success criteria in sourcing contracts.
    Outcome
    Sourcing contracts provide win-win opportunities for both the organization and the supplier.
    Metric
    Average duration of a Tier 1 supplier partnership
  • Practice
    Fully integrate IT contract preparation and closing with the procurement process.
    Outcome
    Potential synergies can be realized.
    Metric
    # of synergies realized
5Optimized
  • Practice
    Ensure inter-supplier operational level agreements (OLAs) can support agility and innovation for the organization in sourcing and multi-sourcing contexts and are included in contracts.
    Outcome
    Suppliers are incentivized to co-operate with one another for the benefit of the organization and for themselves.
    Metric
    % of multi-sourced spend for which inter-supplier OLAs are in placeThe frequency of reviews of OLA/SLA templates
  • Practice
    Continually review contract preparation and closing activities on an organization-wide basis.
    Outcome
    Realized synergies can be optimized.
    Metric
    # of joint meetings with procurement on contracting improvement# of synergies realized