Contracting Management

Definition

• A contract covers any formal commitment that is formalized in a legal agreement and signed by both parties. Typical wording used across Solvay for contracts include: sales / purchasing / supply / sourcing agreement, award letters, business allocation.
• A quote covers any less formal (nonetheless binding) commitment that is made by Solvay to provide a defined volume, at a defined price over a defined period of time (usually shorter than 1 year). The legal aspects attached to a quote are usually limited to the terms and conditions. A quote can be an email, a PO.

Objectives

Contract Management has 4 objectives:

• Maximize value capture across all segments and products
• Specialty value-based pricing
• Commodity flexible pricing
• Optimized duration for key and critical accounts
• Minimized opportunity cost related to small accounts
• Make the best decisions, anticipating market conditions
• Pricing governance and drumbeat
• flexibility to pass through costs during periods of inflation
• Deliver best outcomes through structured negotiations 
• Regular cadence to track account value, risks and opportunities
• Notifications of upcoming contract milestones
• Building strong relationships with profitable segments
• Understanding of customers needs and positioning in market
• Strategic approach by market, GBU or cross-GBU for best outcome
• Negotiations led with established pricing power plays and multiple levers available

Process and Governance

There are 4 key element of the contract management cycle

Lifecycle management

• Contract creation
• Contract renewal - Reviewing of contracts expiring within the next time period
• Flexible contracts - Actively following monthly price/ICM changes, relevant market indices, linking with contract information of (only) flexible contracts

(Re)negotiation and contract preparation

Preparing all relevant data, starting the (re)negotiation process with the customer, drafting the contract and getting final approval

Database maintenance

Adding all relevant contract data incl. final, signed contract to the client folder and filling in the standard contract information

Guidelines & steering

Ensuring contract compliance with mandatory guidelines, steering overall process ownership, aligning sales team focus on contracting priorities

Management guidelines

Objectives

The objectives of contract management guidelines is to maximize value capture across GBUs with a different focus when considering Customer Segments and Product Types

Guideline focus by Customer segment:

• Strategic or Key account - Increase value-capture through understanding of competitive positioning and long-term outlook
• Critical account - Optimize length of contract and flexibility to current  and predicted market conditions and competitive positioning
• Standard account - Reduce opportunity cost of small quantity accounts by standardizing contracts

Guideline focus by Product Type:

• Specialty - Opportunity for value-based pricing, identifying optimal point within feasibility range, balanced with pricing strategy
• Commodity - Minimize risk of contribution margin erosion by considering range of clauses during negotiations, ensuring transparent price increases

Commercial Contracting Guidelines

Quotation Elements

An email quotation must always include:  

• Solvay’s General Terms and Conditions (GTC) must be standard attachment for Standard- and Critical Accounts, Distributors, negotiable for Key Accounts and above. 
• Validity of the quote. Duration of the agreement (for any arrangement longer than one year a formal contract is necessary).
• Price + price increase option to pass on variable costs increase without justification (recommended quarterly price revision and / or hardship)
• Payment terms, Incoterms, Supply Chain Service levels

Payment terms

Follow the new Group standard for payment terms , according to the customer segmentation (Max. 30 days for Std accounts, max 45 days for Critical accounts and Key distributors, max. 60 days for Key accounts) . Payment terms above maximum period will require GBU Financial Director approval (Coatis for Brazil is out of scope). 

Variable cost throughput

Every quotation and / or long term commercial agreement must have a price review clause at least on a quarterly basis and/or hardship to pass through variable costs increases (e.g. raw materials, energy, transportation). Guidance on this can be found in the Best Practice Library . Any deviation requires approval by the GBU president and needs to be documented in the GBU (ad interim gsheet) contract database with the justification incl. a link to the contract. 

Competition law restriction / compliance / general legal validation

Where Solvay has a significant market position, legal restrictions may apply in terms of duration and volume commitments, rebates/discounts, exclusivity clauses, MFN's, and refusal to supply. In such cases, these terms need to be verified with legal.

Other different aspects of compliance (i.e. trade compliance, ethic compliance and COBI, etc.) risks have to be considered.

If the contract is not in accordance with the general terms and conditions for sale of the Group and its subsidiaries, the contract should be approved by Legal and IAM. 

Contracts with a total value greater than 100 MEUR require approval by the ELT . Approval process is still being defined and will be communicated in January.   

→ For further guidelines on Contract (re)negotiation and Risk Management, click here

Negotiation Readiness Process

Negotiation is key to capturing value through contracts. 

WHY negotiation readiness process?

WHEN to use the Negotiation Readiness process?

• Relative importance : deal represents a significant business for the GBU (market or asset perspective)
• Potential underperformance: for example declining revenue, low or declining ICM/unit and/or ICM %
• Strategic potential : exercise will be used to explore a relatively new approach/new market

The negotiation readiness process should be kicked off 6-12 months before the contract expiration / renewal date.

WHAT can be expected from the process?

• Explores and uncovers all aspects of the customer relationship
• Explores and validates perceived value
• Defines ”What do the customer and Solvay want from one another?”
• Builds confidence to achieve value capture

Formulate a negotiation plan that truly leverages value capture with organizational alignment

→ For more details and support materials click here

→ For more information on best practices follow commercial guidelines here