Do you wonder if your contracts are as effective as they can be? In the first of our two part series, we outlined two important qualities of an effective contract, namely simplicity and completeness. If you missed it, you can find it here.
In this issue, we cover 2 more crucial qualities. Read on to find out what they are.
3. Appropriateness of the clauses used
A risk of using templates is that sometimes the approaches adopted in the template won’t accurately reflect the realities of the relationship that you want to set up with your supplier.
For example, I see on so many occasions indemnity clauses that are completely inappropriate for the situations in which they are used, either creating overly onerous provisions for one party that are not appropriate or relevant in the circumstances. Or provisions that fail to capture the proper risks that should be dealt with.
Another example is insurance clauses, which are often used without any consideration of whether the insurances being requested are relevant to the relationship, or whether the amounts being requested for cover properly reflect the industry or size of the party that is being required to hold them.
* Read through the templates that you are intending to use before you use them
* Take time to understand those templates, so that you can readily identify which elements may not be appropriate in all cases
* Start keeping records of which clauses are regularly being sent back to you by suppliers with changes – it might save you time to have pre-defined fall-backs rather than having to deal with new wording with each new supplier.
And at the end of the day, the answer as to whether a contract has been effective is most properly answered at the end of the relationship. If you have gotten to the end of the contract term, and you have achieved your requirements and initial intended outcomes, then the contract was effective.
If the contract has navigated disputes by providing each party with a clear guideline about how to manage the dispute, and those disputes have then been dealt with quickly and effectively, once again, one could view the contract also as having been effective.
If on the other hand, there has been confusion throughout the contract term in relation to any rights or obligations of either party, if the contract hasn’t delivered you your initial objectives or requirements, or if there has been any confusion by either party about any aspect of the relationship, then the contract perhaps could have operated more effectively than it did.
* Spend a little time reviewing your recent contracts – create some notes about what worked with supplier relationships that performed the best, and what happened with supplier relationships that weren’t as successful
* Think critically about what elements of the “successful relationships” you could use to build into your contracting process.
* Think critically about how you could use the contract to avoid some of the issues you faced in the less successful relationships
* Build a process to enable you to measure the effectiveness of contracts moving forward, and to give you time for reflection at least annually – to help re-design your contracts to drive optimum outcomes for all parties.
In future editions, we will be focusing further on what other methods you could employ to help build your contracts with a view to supporting successful contract outcomes. Until then, don’t hesitate to email us or call us on 02 8006 0830 to let us know if you would like to discuss in more detail how to revamp your contracts to be more effective.
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