Getting contracts right and balanced is vital in winning deals.

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I want to share with you a recent experience I had negotiating a contract. During this process it struck me that even though we know there are no fairy godmothers, we still believe they will take care of us.

As a budding recruit learning the commercial ropes, my boss had once warned me about taking that approach.

You can lose your shirt if you don’t get your pricing right. But you will lose your business if you compromise on your terms and conditions.

Don’t take shortcuts on conditions as there are no such things as fairy godmothers to bail you out.

Recently at work we concluded negotiations on a deal. From the get go we thought we had covered the sales cycle well, first qualifying our prospect to make sure our lead was a genuine with substance and had genuine intent. In the education and needs understanding stage we establish our credibility and could decide too if we were a good fit us to take on the work. Then as we looked at functional matches and implementation priorities along with their organizational change capability and resolve, that placed us well to understand all the risks. This process took some time as it moved to and fro on options discussions and as the prospect employed divide and retreat tactics and checked our competitive value.

But in the end with scope, resources and pricing all agreed , as the selected provider, the final step was to agree the terms and conditions to get their signature on a work order. The terms and conditions we included in our proposal had also been part of the practical discussion so we assumed our conditions and working assumptions would not present any issue.

But their legal people did a turn about rejecting anything that had even a hint of risk as they sought to remove clauses that protected us from events not of our making. In particular one clause that was red lined dealt with redress in the event of uncontrollable organization change in their business

As we struggled to find a compromise, suggestions were made to limit the clause to good faith wording and to deal only with specific risks. The watered down clause of course become unenforceable but the temptation to close the deal was by bow very high. This compromise however was still a red flag to me as I reflected on what my old boss would have said.

Blindly relying on fluffy terms to maintain commercial balance is just like lighting a long fuse and believing the bomb will never go off. Or when it does you will be long gone.

In our example we were concerned about:

  1. Many projects have bad experience when key people leave or get re-positioned out. Often too it can even be the sponsors themselves who are gone. In such cases, ongoing carriage of process and managing changes defaults to the service provider to re-sell and continue to implement without the original sponsor support. It also becomes a new ball game as well as you start again at the re-educate stage with a new incumbent and are forced to defend agreements made with a previous one.
  2. In cases where of a key person working with a service provider leaves they will invariably take with them knowledge and leave unfinished work This may revert back to the service provider to back fill and or/redo. Not having redress on this can have disastrous results not only for the service provider to unfairly bear the cost but also the weakened project may struggle and fail.
  3. When the company gets taken over or itself does a takeover of others, there is always a material impact. Any material change in ownership will mean inevitable organizational change which in turn will always have some impact on a current project scope.

When preparing contracts, experience teaches us that pricing is only one aspect. Working assumptions that make this up must also be included and debated well so they are clear.

Terms should never be compromised without also reconsidering the risk and the pricing again. The negotiating approach should not be to reduce mitigation and cover, but instead to sell this as a mechanism to see fairness is re-balanced in the spirit of the original negotiations so nether side in the future can take an advantage

As a service providers it is not only for the burden of added cost or the overall success and gets us paid that is at stake if we get sloppy on our terms and conditions. Doing that can also lose us our reputations that keep us in business.

Do you have similar experiences?

3 thoughts on “Getting contracts right and balanced is vital in winning deals.

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