Lennon & McCartney, Batman & Robin, Han Solo & Chewbacca, Scooby Doo & Shaggy, Sonny & Cher…you get the point! That’s how much I rate an effective Procurement and Legal partnership to the success of a business.
Get it right and the business is on solid ground, get it wrong and the foundations will fail.
Everyone knows how to buy stuff, right?
Wrong…everyone thinks they know how to buy because it’s what they do in their personal lives. But when it comes to spending company cash, there’s a personal detachment, the pressure to deliver targets warps perspective of risk and sometimes inevitably ego takes over. I’m the Head of/ Director/ Chief right? I’ve got years of experience. Why do I need someone else to tell me how to spend our money?
And this is why the Procurement and Legal relationship in any business is sacrosanct.
Both teams have the same objective. We are guardians of the company money, not just this year’s budget, and we don’t play to the hierarchy. We are like the friendly ghosts of Christmas past, present and future! We’ve seen all the bad mistakes of the past, we can show you the impact of those mistakes in the present, and can predict what will happen in the future if you don’t take our advice.
So what’s the difference between Procurement and Legal Teams?
Procurement are fundamentally there to ensure the business achieves the best value from its spend.
We’re the front-line trained infantry. We see what’s going on, what’s coming down the pipeline, we can categorize suppliers and give an overview of business risk. We’re also expert negotiators and through understanding the business opportunity, we can form the negotiation strategy. We also home in on the key commercials. That’s our superpower.
Let’s be clear, we may view multiple contracts but we are not legally trained. Give us a clause on Liabilities, Force Majeure, Data protection and we might have a view but this is not a qualified one the business should ever seek to stand by.
That’s where the expertise of a strong Legal team comes in. The Legal team are the cavalry that will win the day. No contract that differs from any pre agreed standard terms and conditions, should ever pass to signature without a full legal review.
This is where it sometimes goes wrong.
Stakeholders in a business often don’t understand the difference in roles. They may seek to bypass one or both Legal and Procurement. Not because anyone is deliberately trying to go against company policy necessarily but human nature, particularly when it comes to making business decisions, is to try to find the path of least resistance so they can hit their objectives.
They may assume for example that Procurement and Legal teams do not talk. I can’t tell you how often Procurement teams are approached with the following scenario…
“We need to sign the contract tomorrow, can you just take a look?”
Not only is that one of the most frustrating things to hear as a Procurement individual, as all negotiation leverage will have gone, but it’s also a true sign that they do not understand the roles and responsibilities of the Procurement and Legal teams.
Of course, the Procurement team is then duty bound to ensure that legal review happens and the contract cannot be passed to signature without it. If a legal resource has not been booked, then inevitably there can be a delay to contract signature and so the cycle continues.
The stakeholder will have a perception that the Legal or Procurement teams are slowing things down, putting blockers in and may not engage with them again. It’s the antithesis of good governance and a good business partnership. Yet the whole cycle I’ve just described is not actually the fault of the Legal or Procurement teams.
This is where the Procurement and Legal team relationship can step up!
Both teams get visibility of contracts, but not necessarily at the same time. A strong partnership though means a holy alliance can be formed whereby both teams keep each other abreast of what’s going on.
Moreover, both teams should and can promote understanding to the business of when and how to engage. For example, if the procurement policy threshold for spend engagement is $50k, Legal teams can naturally ask the question when a contract that breaches this threshold hits their desk… “what has been the involvement of Procurement in this contract?”
It works both ways of course, and I’ve worked in many contract negotiations with suppliers whereby a combination of legal and procurement expertise drives the best value deal, and the most watertight contract simultaneously.
Procurement needs the backing of a strong legal team, let that point be clear. We could not do what we do without access to strong legal support. We know when to engage Legal and how to leverage their superpower.
There can be friction and it doesn’t always go to plan.
I know legal teams can get frustrated when a procurement expert sends them a contract to review where it’s clear the commercials have not actually been reviewed by anyone. They will spot basic no’s like “immediate payment terms” and wonder…what have Procurement been doing?!
Likewise, procurement teams can be dismayed when the legal team comes back with a view on the commercial deal, a deal that Procurement have worked hard to deliver, when that’s not what they’ve asked for from the review.
It’s important in those situations that the Procurement and Legal teams communicate well. Procurement has an obligation to review the commercials before handing over the contract and to give the legal team full context. Likewise, Legal teams need to trust the role of the Procurement team and ask questions to understand the deal before making assumptions.
But eventually, a strong partnership approach between the Legal and Procurement functions will lead to an absolute powerhouse for the business.
Is my position on this overplayed or overstated?
Perhaps I’m biased. I’ve worked with some brilliant Legal teams and been fortunate in that way. Perhaps it’s because I have a deep-founded respect for their training, their ability to interpret sometimes deliberately complex wording, and the patience required to review sometimes onerous clauses.
But I cannot exaggerate how many poor contracts I’ve seen that have been hugely detrimental to the performance of a business, costing hundreds of thousands of dollars due to poor termination provisions, inability to claim for breach, poorly defined commercial milestones etc.
A strong Procurement and Legal alliance is in my view the backbone of a strong business. You cannot stand tall by your decisions or even move forward confidently, without that backbone.
Lennon and McCartney fell out and went their separate ways and music was never the same again. But when they worked well together, it was legendary.
If you haven’t got a strong partnership yet across the two teams then all I can say is “Come Together”, “We Can Work it Out”!
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.