Contract Management

03 March 2017

 

One of the aspects of consulting we undertake is assisting clients with the overhead of managing their supplier contracts.  Why on earth would you pay someone else to manage contracts for you?   Surely, they are just the bi-products of the services you buy that you “stick in the drawer and never get out again”?   Well that beautifully summarises the problem.

 

As context, let’s think about the birth of a contract.  Client decides they want something, they go to market, loads of discussions are held, everyone focusses on the price, price is agreed and then the legal boys get involved in agreeing terms.  If it’s a term contract; everyone maps out the intricacies of liabilities, termination rights, service levels, IP ownership – weeks of review and mark-up ensues.  Then the lawyers all pat each other on the back; in some cases raise some big invoices, everyone’s happy and the service starts.  The people who interact with the service only really care about the service, and the contract goes into the proverbial drawer.

Months pass.  People change, the lawyers are nowhere to be seen.  The guy who delivers the project gets promoted, or even worse – the drawer gets cleared out.  Invoices get raised in the meantime, but they are just signed off regardless because finance is someone else’s department and providing supplier gets paid, the service works, doesn’t it?

Changes to the contract are made, new orders are raised.  Generally,  they have a different contract end date to the original – creating a “raggedy end” contract of little orders that all terminate at different times.  The orders never make it to the now dusty drawer.  They are in email or on backs of fag packets stored just under the vending machine.

Years pass.  The contract is lost.  The original contract end date is a bit vague, and anyway the raggedy end orders render this date academic.  Then the belter comes in.  Autorenewal.  “If you don’t give us 6 months’ notice your contract will roll for another 5 years” or similar.  The original lawyers only really cared about IPR, the original project owner only really cared about the service, and here you are 5 years on dealing with a commercial renewal where you have no leverage – you must let it roll because the autorenewal clause has invoked and it’s too late.

I hate autorenewal clauses.  I hate raggedy ended contracts.  I hate Cost of Living Adjustment or RPI increases.  I hate Service Level Penalty calculations, Termination for Persistent Failure, etc.  No-one likes contracts.  But unless you bother to understand them, structurally store them, maintain them, create alerts/events on when renewals are due with sufficient notice to deal with re-tendering or re-negotiating services you might as well sign a perpetual pay over the odds agreement.

One of my clients (who don’t take Contract Management) had an issue in a similar vein.  Interestingly the supplier in question has been mentioned by a few of my clients for being overly aggressive on their 3-month notice / 12-month auto-renewal approach, and consistently the clients have no idea what they are paying them for.  In this instance, it only cost them £3k for the auto-renewed service – but that £3k could have been significantly better spent.  A bigger client would be liable for significantly more.

Even worse are telecoms contracts.  Generally, businesses do not open new sites all on the same day.  New sites being added to a telecoms contract usually comes with a fixed term for that site.  This is the ultimate raggedy end situation; every site terminates on a different date, in some cases with different terms and different pricing.  Trying to stay on top of that is nigh-on impossible.

Contract Management as a service is simply Embedded being your dusty drawer.  For a small fixed price per month, we will store your contract, review it and alert you when something needs to happen in enough time to do something about it.  If you want, we can approach new suppliers for quotes automatically in sufficient time to give you some leverage over the incumbent for price reduction or improved terms.  We can provide an opinion on service terms that are being negotiated.  We are NOT trained legal advisers, but have seen enough to informally discuss and help avoid some of the common commercial pitfalls.  We have no fixed agenda, so can act independently to the clients benefit.

Proper Contract Management saves money and reduces risk.  No Contract Management just keeps your drawers full.

 

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