Developing Contracts

Strong contracts allow both parties the opportunity to clarify their relationship and state what is expected of the other.  Participation of both parties is essential in creating an agreement that explicitly outlines, in straight-forward language, the purpose and details of an engagement.  Spending time ensuring that the contract is right contributes towards the success of the partnership and the outcome.

The following extract is from the UK’s Office of Government Commerce briefing “Principles for Service Contracts: Contract Management Guidelines.” To read the full document, visit this page (opens PDF).

“The following factors are essential for good contract management:

  • Good preparation. An accurate assessment of needs helps create a clear output-based specification. Effective evaluation procedures and selection will ensure that the contract is awarded to the right provider.
  • The right contract. The contract is the foundation for the relationship. It should include aspects such as allocation of risk, the quality of service required, and value for money mechanisms, as well as procedures for communication and dispute resolution.[…]

If contracts are not well managed from the customer side, any or all of the following may happen:

  • the provider is obliged to take control, resulting in unbalanced decisions that do not serve the customer’s interests
  • decisions are not taken at the right time – or not taken at all

What can go wrong [in a service contract relationship], and why:

  • new business processes do not integrate with existing processes, and therefore fail
  • people (in both organisations) fail to understand their obligations and responsibilities
  • there are misunderstandings, disagreements and underestimations; too many issues are escalated inappropriately
  • progress is slow or there seems to be an inability to move forward
  • the intended benefits are not realised
  • opportunities to improve value for money and performance are missed.
  • Ultimately, the contract becomes unworkable.

There are several reasons why organisations fail to manage contracts successfully. Some possible reasons include:

  • poorly drafted contracts
  • inadequate resources are assigned to contract management
  • the customer team does not match the provider team in terms of either skills or experience (or both)
  • the wrong people are put in place, leading to personality clashes
  • the context, complexities and dependencies of the contract are not well understood
  • there is a failure to check provider assumptions
  • authorities or responsibilities relating to commercial decisions are not clear
  • a lack of performance measurement or benchmarking by the customer
  • a focus on current arrangements rather than what is possible or the potential for improvement
  • a failure to monitor and manage retained risks (statutory, political and commercial).”

The following resources may help you to develop strong contracts, but it may be a good idea to work with a skilled professional when working on your contract template. Remember, the law in the country you are working is going to have its own specific requirements, so don’t rely on information from the US or the UK if that’s not where you are!

Additional Resources:

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