Today’s contracts are becoming more complicated than ever – not a massive surprise given:
- current market volatility;
- supply chain disruptions;
- constantly changing regulatory requirements; and
- environmental uncertainties.
Back in 2014, World Commerce & Contracting (World CC) published its “Ten Pitfalls to Avoid in Contracting” report. This week, I’ve re-visited these with a comment against each as a simple risk management tool, you’ll see a theme emerging:
- Lack of clarity on scope of goals – Get the sensible Heads of Terms (HoT) agreed so that there is clarity before spending time and money on a contract that is based on the wrong assumptions, it also can save further legal fees down the line in terms of the main contract drafting.
- Legal team not involved early enough – The earlier we are involved, the less cost further down the line.
- Failure to engage stakeholders – Part of any contract process needs to be getting sign off not just from the folk managing the process but other key stakeholders, build this into any HoT draft to avoid issues
- Protracted negotiations – Again sensible HoT cap the never ending cycle of ‘just one more thing’ during the contract drafting and approval process that eats up time and raise both costs and blood pressure!
- Negotiations focus on wrong terms and conditions – Starting with a HoT structure helps avoid this.
- Contracts lack flexibility, insufficient focus on governance – Add this into negotiations as early as possible.
- Contracts difficult to use/understand – Making something complicated simple is an art form, but is much easier based on an agreed approach via HoT and it saves costs too.
- Poor handover from deal team to implementation team – If applicable, one to be aware of and addressed by getting the right stakeholders into the HoT process at the start.
- Limited use of contract technology – If applicable, this can be nailed down using an industry specific or other platform in the HoT.
- Poor post-award processes and governance – Prepare the ground on this in the HoT.Awareness of these pitfalls is key to mitigating the hassle, yet that will only get you so far.
For safer contracts, look to develop a HoT template covering not just the above but the other key negotiating strategies and aims for you. You will need legal advice to get the formatting and effect right, but it will save you time, costs and stress and lessen the risk of coming aground.
Regards to all
Roger
