The Cost of a Contract

Mon, 08 Sep 2025 19:07:01 GMT

The cost for businesses to process a basic contract has risen to $6900

The average cost to businesses of processing and reviewing a basic everyday contract has risen to $6900, according to new research by The International Association for Contract & Commercial Management (IACCM).

The study, based on analysis of more than 700 major organizations, found that business spend on reviewing and negotiating a standard, low-risk procurement or sales contract has increased 38% in the past six years, to an average of $6,900. Costs for a mid-complexity contract with more significant risks and review have risen by 11% to $21,300. High complexity procurement contracts, with “unique” risk factors, average $49,000, but costs can run into hundreds of thousands. High complexity sales contracts tend to cost more than those for procurement, in part due to a different cycle of activity.

The analysis is based on data that comes primarily from corporations based in North America and Europe, with annual revenues of $1billion or more, and compares current costs with a similar analysis undertaken in 2011. IACCM benchmark research has established typical turnaround times of contracts from preparation to signing (elapsed time) and estimated the average workload (expended time) from its many member engagements and process reviews.

Cost data was extracted from the 2017 IACCM salary survey.

The study finds the increasing costs associated with contract production reflect growing strains on legal, operations, finance, sales, and procurement in organizations. These are driven by the pressures of heightened regulation and also the steady move from product sales to services, demanding far greater attention to defining requirements and negotiating scope and service levels.

Where does the time go?

On average, organizations are spending about 25% of their time on contract creation (including activities such as requirement definition and developing scope), 30% on negotiation, and 45% on review and approval. In the most efficient, the proportion of time spent on creation increases to more than 40%, which then translates to significant reductions in time required for subsequent activities.

Tim Cummins, Chief Executive of the IACCM said: “Contracts are the lifeblood of businesses, but the process by which they are formed has typically received little management attention. That explains why, in 2017, in spite of a business focus on automation and agility, the

operational costs of contracts remain so high. While some have made investments that deliver effective and efficient outputs, in many cases complexity is tolerated, with even leading businesses accepting antiquated and largely manual approaches to an activity that calls out for

modernization and automation.”

Simple enhancements can cut contracting by one third

The study shows that efficient businesses have cut around one-third of the cost on contracts when compared to the average business. The most efficient use playbooks or master terms and are embedding technology, such as AI solutions, eliminating the need for case by case discussion of clauses and also starting to empower business users to self-select within controlled parameters. It found the lowest costs for an individual contract in these ‘top quartile’ companies is $3,800, $14,000 for mid complexity contracts, and – remaining consistent with the

average - $49,000 for high risk or unique contracts.

Based on the research, IACCM observed that management in many companies is awakening to the inherent inefficiencies of today’s contracting processes. The extent of manual intervention, outdated methods of production, individualistic approaches to legal drafting and error-prone production of key documents such as statements of work impose unacceptable delays and costs which are becoming more evident as corporations invest in digitization.

Rise of regulation and service agreements driving up costs

The study found that an increase in regulation, such as anti-bribery legislation, data protection and cybersecurity rules, has driven up the time taken for reviewing contracts. The complexity of contracts has also increased as services and solutions agreements now equate to

approximately 60% of business spend, creating a major change in the form and content of contracting. The IACCM argues that tangible goods are much easier to test, define and specify, while intangible services require increased diligence, such as validating supplier capabilities through service delivery undertakings, drafting service levels and outlining key performance indicators.

Other findings

● Based on salary survey data, the average fully accounted cost for employees involved in

contract review is $120 an hour.

● The gap between ‘average’ and the best has grown, primarily due to variability in levels

and quality of automation between the efficient and inefficient organizations

● Smart companies are moving away from templates and using new technologies such as

artificial intelligence to save time and money through the production of more customized

or industry-specific agreements drawing on clause libraries.

The future

Emerging technologies should eliminate many of these problems. Intelligent systems, together with the steady development of global standard terms, will revolutionize the way that contracts are produced and managed. As these are introduced, they will rapidly reveal the scale of cost and delay that is associated with today’s methods.

Modernizing Procurement at Public Services and Procurement Canada: A Case Study in Contract Modernization at Large Scale

Tue, 25 Feb 2025 21:11:09 GMT

Modernizing Procurement at Public Services and Procurement Canada: A Case Study in Contract Modernization at Large Scale

In December 2019, Public Services and Procurement Canada (PSPC), a cornerstone of the Canadian government's operations, embarked on a transformative journey known as the Contract Modernization Initiative (CMI). This venture was spurred by a mandate from the Minister of Public Services and Procurement to overhaul and streamline the government's procurement practices. The overarching goal was to simplify these practices, reduce the administrative load, and make them more accessible and efficient while incorporating broader economic policy goals such as innovation and green and social procurement.

Project Scope and Objectives

The CMI was initiated against a backdrop of increasing complexity and scrutiny in government procurement processes, highlighted by high-profile failures in other government IT projects. It sought to address these challenges by redefining procurement processes, simplifying contract terms and conditions, and revising the overall structure of government contracts to be more intuitive and less burdensome for users.

Strategic Approach and Technological Solutions

The initiative's approach was multi-faceted, involving reorganizing contract clause libraries, simplifying contract language through plain language drafting, and the development of innovative technological solutions. A key outcome was the creation of a central web server hosting dynamic templates and clause libraries, complemented by a Microsoft Word Add-in. This combination aimed to facilitate the quick assembly of tailored procurement documents and ensure ease of review and management.

The technological platform developed under the CMI included a central website serving as a repository and management hub for procurement documents, and a distributed Word Add-in that enhanced the secure creation and review of these documents. This suite of tools aimed to improve operational efficiency in contract assembly and foster a more standardized approach to procurement across PSPC.

Impact and Key Achievements

Implementing CMI led to immediate and substantial improvements within PSPC's procurement processes. Notable achievements included integrating contract terms directly into procurement documents for greater transparency, modernizing and simplifying clause language to improve readability, and establishing a dynamic clause library to facilitate access and updates. Additionally, the initiative leveraged existing word-processing programs to minimize the learning curve for users, significantly enhancing software adoption and utilization.

Future Directions and Concluding Thoughts

As the CMI moves forward, plans are underway to extend the modernized procurement platform to all Canadian Government Departments, aiming to standardize and enhance procurement practices government-wide. Furthermore, the initiative seeks to incorporate a data-driven AI Procurement Assistant to streamline further and optimize procurement documentation processes.

In conclusion, the PSPC Contract Modernization Initiative represents a significant leap forward in modernizing government procurement practices. By leveraging strategic planning, stakeholder engagement, and innovative technology, the initiative has set a new standard for efficiency, transparency, and user-friendliness in government procurement. It offers a promising blueprint for future modernization efforts of public procurement and accountability.

acretiv-ai-unpublished

The Cost of a Contract

The cost for businesses to process a basic contract has risen to $6900

Modernizing Procurement at Public Services and Procurement Canada: A Case Study in Contract Modernization at Large Scale

Modernizing Procurement at Public Services and Procurement Canada: A Case Study in Contract Modernization at Large Scale