The Risks Of Not Managing Your Contracts
Image: Mike Cox at Unsplash
My daughter is the diligent intellectual of the family.
One magical Christmas day morning, after much hullabaloo and excitement, stocking-opening time arrived. My daughter was 8 at the time so there was no fold-by-fold careful unwrapping like one of those unboxing videos on YouTube.
No, she tore off the wrapping faster than a management consultant sends their invoice, then sat there, straight-faced, checking off (aka “goods receipting”) her gifts against her wish list that she’d expected Santa to deliver on.
Receiving just 4 out of the 10 gifts she’d requested (customer demand hadn’t been translated effectively to the “ops people” ie me) she tried to put a brave face on, but then burst into tears.
In business, when we don’t receive what we’re expecting against what has been contractually agreed, the impact goes beyond a feeling of disappointment. The business AND your reputation can be harmed.
Think about the tremendous effort that you put into a successful negotiation, ensuring your business objectives are met, measures of success defined and both parties walk away satisfied, keen to implement the agreement.
But after the high-fiving and honeymoon period, it’s easy for focus to drift. New priorities can emerge and your attention can be diverted from getting the performance from the contract that you were expecting.
The contract that you’d painstakingly agreed might be dumped in that mythical bottom drawer never to see the light of day again.
I have an experience like that going on now – I’ll spare the litigation risk but suffice to say it’s with a company with a similar name to where Prince Charles used to live.
They’ve received a lot of bad press lately (not to the same extent as the board of Open AI, mind) about not fulfilling their contractual obligations on a grand scale. This has opened up a case where 00’s of people are seeking redress to recover payments for services that they’ve paid for but never received.
The point is, in our personal lives, most of us won’t routinely manage our contracts to ensure that we’re getting the service we paid for (perhaps unless the impact is felt directly, like when your mobile phone signal is down for weeks, or if your take away delivery doesn’t turn up. Heaven forbid.)
But in a work context, if your supplier feels or knows that you’re not at the very least managing the contract for compliance (never mind trying to secure additional value from it) there might be a tendency for them to let performance drift, or misinterpret price rate cards, directly impacting your business.
They may not be doing this willfully, but faced with a choice of where to prioritise resources, customers who are actively performance-managing their contracts will receive more attention. These businesses are likely to be better off, receiving the services they paid for, and more besides.
Your business can never recover from the impacts of poor quality, late deliveries, missed savings opportunities.
And while you might sit comfortably thinking that you can resort to activating your audit rights clause (if you have one) in your contract, digging through invoices to identify overcharging retrospectively, this is seldom viewed as a collaborative activity that strengthens a relationship and can damage trust, whatever the outcome.
It’s far more effective to spend the time proactively managing your contracts, especially for suppliers that are important to your business, making sure you get what you’ve agreed from the start.
If you’re not 8 years old, bursting into tears probably isn’t a viable and effective option for you when confronted by such disappointments, so my advice is to invest time in managing your contracts for compliance (at least), but better still, manage them for improved performance. But do manage them.
