A wide variety of global corporates are creating simpler contracts – to speed up transactions and to enable them to do business with SMEs. Many start-ups, innovators and niche specialists simply cannot afford the time/energy/money to review long complex contracts.
The problem
Many of the issues related to complex contracts are fairly well known across sectors – value erosion (lost profits), lack of understanding, cost of negotiation etc.
But perhaps it is best demonstrated with a story. An educational institution spent millions of pounds of money which was not theirs. At the completion of a multi-million pound construction project, the estate staff noticed it had money sitting in its accounts. It had not read or realised that they money was a fund known as retention which is not paid to the contractor until 12 months after completion. However, it is the contractor’s money.
No-one had understood the contract (it was over 150 pages long) and no-one had put in place the internal procedures to ring-fence that money. When the requests for that money came in, the institution was in big trouble.
The benefits
I know that contracts are not sexy, or exciting and it is often not easy to see the link between a bad contract and impact on your profitability. But I also know that because of their simpler contracts:
- a trade association has doubled the number of contract downloads, and their builder members can explain the contract to their clients easily
- an architect practice massively reduced the resources to prepare and agree contracts – time, energy and money they can invest in resolving issues when they do arise
- a small builder has improved their negotiating position because they can point to clear wording in their simple contract (rather than bamboozle their client/supplier with jargon which requires a lawyer to interpret)
- an engineer consultant has enhanced trust because they can ask the right questions at the right time
- an SME become more profitable, as their clients know exactly what is included and excluded from their scope, and they can clearly charge for ‘extras’
- an specialist subcontractor has total confidence and pride in their contracts – which also safeguard their business
- a family building company has eliminated objections from clients and suppliers.
What should you do?
Consider (or evaluate) the cost to your business of your current contracts – the return on investment for any simplification project is huge: efficiency, cost savings, faster deals, as well as greater trust within a supply network.
Why delay? Start today!
