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.