Contracts that perform in practice

Contracts are tools to help you do business.

Your contract must perform for you on your projects – it should be easy to use and responsive to your and your clients’/suppliers’ business needs.

Practical processes

We could spend a long time debating which are the most critical terms in a contract. Even the respondents to World Commerce and Contracting’s regular contract negotiation survey disagree between the terms which are most important, most negotiated and most disputed.

However, in the interests of keeping things simple, here are my top 4 to consider:

  1. does your contract set out the key objective for the project (pick one of time, cost, quality or other)?
  2. are your payment terms understood by everyone in your business responsible for financial matters?
  3. does your contract include a flexible change process to take account of the unexpected (like a global pandemic)?
  4. does your contract include a limit on the provider’s liability?

Interestingly, limits on liability are the most negotiated terms across all jurisdictions and all sectors according to the World Commerce and Contracting Most Negotiated Terms Report (available to members). For me, they balance the provider’s risk with its reward and prevent companies betting their business on a project.

Poor payment and change mechanisms drive the majority of disputes as well as contributing to massive amounts of friction on a project. It is critical that these are right as they matter on a day-to-day basis to both parties.

And setting out the key objective means both parties are working towards a clear known goal – and that objective will also dictate the client’s priorities when changes are reviewed and implemented. It is far better to know this before you start!

What should you do?

Ask your team to tell you which elements of contracts are the most frustrating and annoying in their role and fix those first. Make them practical for you and your clients/suppliers. Make sure your contract works for you and helps you do business.

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