Contract management decides your margin

A four-year supply contract, properly negotiated, signed, filed. Two years later energy prices have risen. The price adjustment clause was never invoked, because nobody owned it. Three customer change requests were performed and never charged as variations. The customer has been paying late for months, and nobody has ever claimed default interest. The contract is legally sound. The money is gone anyway.

That is not an outlier but ordinary business. And it is why contract management is a question of margin rather than a piece of legal housekeeping.

The loss happens after signature

World Commerce & Contracting (WorldCC) has studied this loss for more than a decade. The 2023 report published with Deloitte puts it at an average of 8.6 percent of contract value. The best performers sit at a little over 3 percent, the weakest above 20 percent. WorldCC had already named ten causes in 2021, and only three of them lie in the contract text: unclear scope, a lack of flexibility, and contracts that are hard to understand. The rest are handovers, ownership, and follow-through.

Anyone who takes that number into a board meeting should know how reliable it is. It comes from workshops, interviews, and surveys across 1,236 organizations, collected between April 2021 and December 2022. That is self-reporting, not an audit. WorldCC says so itself about the predecessor figure of 9.2 percent, with remarkable candor.

I still consider it the most important number in contracting, though for a different reason than the one it is usually cited for. It is no calculation base for your business, but it is evidence that practitioners worldwide report the same experience. The contract is negotiated as if signature were the goal, and after that nobody looks at it again.

One item in this field, by contrast, is no estimate at all. It can be calculated to the cent. Where German law governs the contract and a commercial customer pays late, Section 288(2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB) gives the creditor interest at nine percentage points above the base rate. At a base rate of 1.52 percent (as of 1 July 2026), that is 10.52 percent a year. On top comes a flat fee of 40 euros per claim under Section 288(5) BGB, unless the CISG applies. Six months of delay on 500,000 euros is a little over 26,000 euros. Not asking for it means leaving a quantified claim unasserted. That is more than a courtesy to a good customer.

Diagram: a contract timeline. Before signature, attention is dense: scoping, drafting, negotiation, approval. After signature, attention drops to almost nothing while losses accumulate: variations not charged, price adjustments not invoked, deadlines missed, renewals unnoticed.

Attention

Scoping

Drafting

Negotiation

Approval

everyone involved

Signature

Loss

Variations not charged

Price adjustment not invoked

Deadlines missed

Renewal unnoticed

nobody in charge

11% in procurement

In January 2026 WorldCC followed up. The report “Closing the Procurement Value Gap” puts value erosion in procurement contracts at 11 percent. This time the number is broken down. Around two to three percentage points each go to missed savings, unrecorded changes, and poorly planned renewals. One to two points each go to unmanaged clauses, untracked price adjustments, and penalties and disputes arising from missed obligations.

The report was produced with a contract software vendor. So was a September 2025 study in which 70 percent of nearly 200 companies surveyed admit to a disconnect between their contracts and their financial oversight. A company selling software has an interest in a large number. The methodology behind the 11 percent is not publicly disclosed.

The breakdown is nonetheless the most useful thing this research has produced so far. Not one of those items arises while drafting. All of them arise afterwards, in performance, and all of them are manual work.

How large the loss is depends on your industry

The spread is the real finding. The same study adds the cost of contracting to the value lost and measures both against revenue. For an average consumer goods company it arrives at 2 to 4 percent of revenue. In sectors running high-value capital projects, machinery and plant engineering above all, the same figure rises above 15 percent. There both sides negotiate, buying and selling, and both sides lose.

You cannot recalculate any of this for your own business, and that is not the point. The more complex, the longer running, and the more heavily negotiated your contracts are, the more money you lose in performance. If you export machinery, plant, or components, you sit at the upper end of that scale, not the lower one.

Under German law you lose the whole clause, not a share

The international debate about value erosion counts in percentages. German standard-terms law knows no such middle ground. An overreaching liability clause is not trimmed down to the permissible maximum but struck. The statutory regime takes its place (Section 306(2) BGB). A supplier who wanted to cap liability at the order value then faces unlimited liability. The most expensive clause in the contract then fails entirely instead of losing part of its value. A court reviews separately only a part of the clause that can be severed in substance and still makes sense on its own.¹

Worse still, review between businesses is barely gentler. If a clause falls under a prohibition in Section 309 BGB when used against consumers, that is indicative of unreasonable disadvantage between businesses as well. The only exception is a clause that is reasonable because of the special interests and needs of business dealings.² How to draft a clause that holds is set out in the article “Why your limitation of liability in B2B contracts fails”. Where the legal position is clear, the rider “to the extent permitted by law” makes a clause invalid. The reasons are set out in the article “To the extent permitted by law? Not a good idea”.

The most frequent of the ten causes, unclear scope, goes to the basis of every claim for additional payment under German law. If you do not describe precisely what you owe, you cannot prove what you delivered beyond it. See the article “Why contracts fail on the statement of work”.

Why the gap is getting more expensive right now

Multi-year contracts currently operate in an environment they do not reflect. Tariffs change within weeks, sanctions lists grow, lead times and energy prices swing, payment terms are extended. Every one of those movements is either covered by the contract or it is not.

If it is covered, somebody has to invoke the clause, on time and with evidence. If it is not, the statute decides, and Section 313 BGB helps less often than companies hope. Both are tasks that arise in daily business, not in the negotiation. And that is precisely where, in most companies, nobody is in charge.

On extended payment terms the law is in fact better than practice assumes. The Court of Justice of the European Union has ruled on payment periods that the debtor sets unilaterally. A period of more than 60 calendar days set in this way is not an express agreement within the meaning of Article 3(5) of Directive 2011/7/EU (Late Payment Directive). This applies unless it can be established that both parties intended to be bound specifically by that term.³ But nobody makes use of that if nobody in the company checks incoming payments against the contract.

A WorldCC survey from June 2026 shows this against the geopolitical backdrop. 39 percent of the companies surveyed have no formal process for geopolitical risk or only an ad hoc arrangement. Only 15 percent have board-level oversight with defined escalation triggers. 35 percent made no significant clause changes over twelve months. The clauses changed most often were price escalation (47 percent), followed by force majeure and alternative sourcing (35 percent each). The survey states no sample size; it works as a mood reading, not as a statistic.

The finding behind it is still revealing. It fits everything above. The problem is worked on at clause level, not at the level where it arises. Buyers protect themselves with long-term fixed prices, sellers with escalation clauses. So both sides negotiate over who carries a disruption that neither of them caused. And because nobody steers this in daily business, the outcome gets renegotiated rather than claimed. Almost two thirds of the affected respondents report renegotiation without a formal dispute.

Two invoices from practice

The sentence “our contracts have never caused any problems” is a common one in companies. It rarely survives examination. In one case a maintenance contract renewed automatically every year unless somebody terminated it in time. The fee was 70,000 euros a year. The plant it covered had been standing idle for years. Nothing was maintained, and payment continued. By the time anyone noticed, the maintenance provider was insolvent. The claim for repayment was worthless in practice.

One contract, 70,000 euros a year, over several years. Any contract management at all, however plain, would have found that item in its first pass. Anyone who considers such a system too expensive should put that number next to it.

The other side of the ledger I know first-hand from a senior in-house counsel at a DAX-listed group. There, supply contract monitoring is automated. On the first day of delay, a letter goes out to the supplier automatically, with the contractual penalty agreed in the contract. Nobody decides case by case, and nothing is forgotten. That company has grasped what most legal departments do not even claim for themselves: law costs money, and it can also earn it.

Why the loss stays invisible

How widespread this is shows in the 2025 CCM Benchmark, which WorldCC publishes together with a software vendor. 88 percent of the organizations surveyed recognize that contract and commercial management directly affects the resilience of the business. At the same time, 70 to 80 percent of them lack clear accountability for contracting performance. The two numbers show recognition without ownership.

Two patterns explain why it stays that way.

The first is split ownership. A contract touches procurement, sales, engineering, project delivery, and legal. Each of those functions is responsible for a part, none for the outcome. Whoever should invoke the price adjustment takes it for a sales task, sales takes it for a procurement task, procurement takes it for a legal one. Everyone has seen the contract, nobody acts before the deadline. The figure above is nothing but that condition, measured in percent. The countermeasure is not bureaucracy but a name on the cover sheet.

The second is the normalization of deviance. The term comes from risk research; the sociologist Diane Vaughan coined it in her study of the Challenger disaster. A deviation from the standard passes without consequence, becomes a habit, and eventually becomes the standard itself. The first variation order that goes unwritten costs nothing. The tenth is company practice. At some point nobody asks any more why project margins always come in thinner than calculated.

Some run a briefing, almost nobody runs a debriefing

Well-prepared companies enter a negotiation with a briefing. Objectives, limits, roles, fallback positions, ideally in writing. Far from everyone does that, and after signature almost nobody does anything at all. Hardly any company sits down once the project is finished to review it. Which clause caused trouble in performance, which concession turned out expensive, which deadline did nobody track, and what did the other party do better?

The consequence is expensive, and nobody notices it. The knowledge stays in the heads of the people involved, leaves the project with them and eventually leaves the company. The next negotiation starts from zero, and the same mistake costs the same money a second time.

A debriefing takes two hours and belongs in knowledge management, not in an inbox: one page per project, linked to the clause at issue, findable by whoever negotiates the same contract two years from now. It is the cheapest part of contract management and the only one that improves with every round.

Lawyers alone cannot prevent the loss

The decisions that cost money are rarely made by the lawyers. The buyer who accepts the other party’s standard terms without objection. The salesperson who makes a commitment by email. The project manager who performs a change without writing the variation order.

So what counters value erosion is enabling the people who apply the contract every day, plus a short, rehearsed process. A thicker contract does not help, and neither does software. Keeping it short is what matters. I describe how a process blocks itself when nobody caps it in “How to Sabotage an Organization”.

Contract management does not start with software

The reflex runs the other way. Value erosion identified, so a system is procured, ideally one with artificial intelligence in it. I recommend the reverse order, and I do not sell software.

The first step is an inventory: which contracts are running, who owns each of them, what dates they contain, and which clauses somebody has to invoke actively. That is business process work, not IT. It fits into a spreadsheet and a shared calendar and is done in a few weeks. Only then can you see where the problems are. Only then is the question of tooling worth asking.

Software automates an existing process. Where none exists, it only speeds up the disorder, at a license fee. Even at the DAX-listed group, automation was the last step, not the first. Before it, somebody had to decide that day one of the delay is the trigger. It also had to be settled that the contractual penalty is claimed without discretion.

What that sequence looks like inside a large group is now on the record. The legal department of Siemens Energy first spent roughly six months understanding how the department works. In doing so, it identified which problems had to be fixed before any digitalization. The authors consider starting from the technology unlikely to succeed. They cite an article in the Harvard Business Review according to which digitalization simply magnifies flawed practices. One of the first tools they built was, of all things, one that drafts claim letters in seconds and supplies the associated deadlines.⁴

One objection is fair. Part of the loss cannot be avoided. The contract is signed, then circumstances change. No contract management in the world stops a war, an embargo, or a supplier insolvency. The monitoring itself costs working time too. So what matters is not zero but the distance between a little over 3 and more than 20 percent. That distance is not a matter of luck.

Frequently asked questions

Where does contract value erosion actually happen?

Mostly after signature. Variations are performed but never charged, price adjustment clauses are never invoked, notice periods expire, and work is delivered that nobody bills. The negotiation is the visible part; the money is lost in operations.

How large is the loss, and how reliable is the number?

World Commerce & Contracting (WorldCC) and Deloitte put the 2023 average at 8.6 percent of contract value, with the best performers at a little over 3 percent and the weakest above 20 percent. The figure rests on self-reporting by 1,236 organizations, not on audited accounts. It does not prove an exact percentage, but it does establish the order of magnitude and the spread.

What actually stops the loss?

Contract management, and first as a process, not as software: a named owner for every contract, all deadlines in the same calendar as the delivery dates, no change performed without a written basis, reviewed clauses, and training for the people who decide in daily business. Software automates an existing process; where there is none, it only speeds up the disorder.

Is this a matter for the legal department?

Only in part. The clauses come from law, the losses arise in procurement, sales, and project delivery. Stopping the loss means enabling the people who decide about the contract in daily business.

Notes

1. BGH, judgment of 14 January 2015 – XII ZR 176/13, para. 23. ↩

2. BGH, default judgment of 19 September 2007 – VIII ZR 141/06, para. 12. ↩

3. CJEU, judgment of 6 February 2025 – C-677/22. In that case the debtor had, in conditions it drew up alone, set a payment period of 120 calendar days. ↩

4. Inga Ponnath/Florian Koemm, The (Rocky) Road – A Digitalization Example From Siemens Energy’s Legal & Compliance Team, RInPrax 2025, 128. ↩

Reference: Poleacov, P. (2026). Contract management decides your margin. INN.LAW. https://inn.law/en/perspectives/contract-management-value-erosion/

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