#Sign the contract first

Procurement Contract Legal Negotiation Risk Sign

A frequent complaint heard from owners of small businesses dealing with larger companies, is that administration, forms and contracts take an undue amount of time. Especially standard contract documents are often 60+ page documents written in a language that is hard to understand for someone not legally trained. So why not just issue a quote and start working straight away upon confirmation from the customer? If the Procurement department is not aware of the transaction, you may even get away with that.

The contract protects both parties, not just the customer. That is a commonplace statement, but very true based on long experience with many different suppliers. If you supply office materials and get paid upon receipts booked, you may be just fine without the contract if the value is low. But if you are providing services, time and quality critical goods or complex technical installations, you definitely want a contract and a well specified Statement of Work to describe each project. This is the only way to guarantee you can prove you have delivered what you promised, ensure you receive the money due and have clear rights in case of any disputes or claims.

There are many different types of contracts, written or even verbal ones. But for business purposes, having a clear written agreement is still the standard. And whilst electronic signatures are becoming more common, e-mail and similar is still not a sufficiently reliable contract basis. Did you know that most of your large clients will also delete all e-mails after 6 or 12 months? Your trail of evidence, if not carefully stored your end, may just be lost then.

So ensure that you agree a framework contract (terms and conditions that will apply to all work delivered) and also have an additional document specifying the goods or services delivered for the respective project. For goods this may be a detailed quote, for services you will most likely require a statement of work that describes in more detail what exactly needs to be delivered. It’s the “what”, “how”, “when”, “where”, “by whom” and “how much” of the service.

Failure to agree those first can have serious consequences for suppliers. You may feel lucky not to have to go through Procurement, but not all counterparts in the business know how to professionally manage third parties. A loosely defined project may be a source for constant revision requests, new requirements added, without you being able to clearly dispute they were part of the price. If you are on a fixed price, this can be a substantial dent in your finances. Even if you are on time and materials and you feel it’s ok as you will get paid for the effort – a project with poor outcome (likely if not well defined) and a lot of money spent on can dent your reputation. The client is unlikely to take the blame and your company will be named and shamed.

We have seen some horrific examples of suppliers doing months of work, with no contract or even a loosely defined project scope. The expectations internally was that “the suppliers knows this sort of project, they will figure it out). Since the process bypassed Procurement, there was also no payment at all and no clear agreement on the amount due. Finally Procurement would be engaged to clean up the mess. The internal business client would blame the supplier, ask Procurement to aggressively negotiate down the damage and switch supplier for “poor performance”. Definitely not much fun to be the go-between, but even less fun being the supplier in this case.

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