Words by Megan Avard, Founder and CEO
Contracts are an essential part of all industries, and play a major role in virtually every project. From securing funding to employing subcontractors and supplying resources, there are a wide variety of contracts that need to cohesively work together within a project to create the desired outcomes.
Failing to effectively and adeptly manage the risks inherent to these contracts can result in potential losses. And from the outset, before you even sign on the dotted line, there are three main risks that must be managed: time, costs and communication.
Underestimating how much time it will take for a contract to be signed is an easy mistake to make. But there are things you can do to ensure the process moves as smoothly and speedily as possible.
The first step is to engage a good contract lawyer with experience in your specific industry. Your lawyer should give you confidence that your contracts are in knowledgeable and credible hands. The time it takes to do research and due diligence before engaging a contract lawyer could save you from lengthy and costly negotiations and mistakes down the track.
When creating your project timelines, factor in time for the initial negotiation process, which can be extensive. It’s important to give your client deadlines and be diligent in your follow-ups to ensure the process moves forward.
To minimise back and forth movement of the contract between the parties and thereby delaying the process, try to incorporate your client’s requests the first time round. For some companies, any major changes to a contract will require Board approval, and if their Board doesn’t meet regularly – some only meet quarterly – this could be a major drag on the process. Get it right the first time to avoid delays.
Agreeing on a contract can be a costly process, which needs to be budgeted for. Before making any decisions, gain a complete understanding of how your lawyer operates, as legal fees for contract changes can escalate. Wherever possible, ask for a fixed price to help you avoid going over budget.
While it can be instinctive to balk at contract lawyer fees, remind yourself that it is far better to pay these legal fees upfront in order to avoid any additional costs that might be incurred in a court battle.
Without solid and open lines of communication, contracts can easily fall apart. It is critical that any changes made to a contract are tracked – ideally, your contract lawyer should use software that flags differences between versions to make certain that nothing falls between the cracks.
If a client comes back with changes or mark-ups that seem unreasonable, try to be objective, and keep in mind that there could be a good reason why that detail is important to them.
That said, if the client is particularly combative, and you’re starting to notice some red flags, be aware that any unease experienced through the contract process is a sign that the client relationship will be a difficult one.
Before anyone signs the dotted line, make sure you understand all clauses in the contract. This comes back to your relationship with your contract lawyer, and why finding the right one is so important. You want to be completely clear and certain on the terms of the contract before making any commitments – and you should ensure that it includes an exit clause.
If you are looking for a way to strengthen communications between parties and to smooth over the contract process, try to deal directly with the decision-maker. By cutting out the middle person, misunderstandings can be avoided and time can be saved.
With all of this in mind, do not pin all your hopes on one deal. It’s always better to have several potential signings on the go at once, to avoid disappointment if contracts fall through.
Managing contract risks with SurePact
When it comes time to deliver on your contract, you want it to be without surprises.
SurePact’s Contract Delivery software helps your organisation deliver on time and on budget by eliminating CapEx and OpEx overruns and ensuring compliance, transparency, visibility and accountability.
To begin identifying and mitigating risks in your contracts, visit surepact.com/contract-delivery.