Checking a Contract’s Health

Most of the world is morbidly preoccupied with health these days. Businesses too are worried about their own health in these uncertain times, and rightly so. Complaints about cures being worse than the disease has spread like an Australian wildfire. But though people and businesses are being tested, I’ve not heard anyone recently speak about getting a contract health check.

Contract health check

Why a Contract Health Check?

Much as companies want to consider contracts as agreements set in stone, every agreement eventually needs some adjustment. Consider these questions, and think about the contracts you have with vendors:

  1. Do these contracts offer good value for money?
  2. Would you like to get more from your contracts?

If your answer is yes to either or both of these questions, consider evaluating your contracts and look at ways to adjust them to save time and money.

Assessing contracts from time to time reduces inefficiencies and service gaps, many of which you can’t see until after a business relationship has already developed between you and your vendors. Looking at current contracts can also help you prioritize business objectives and get the most out of any agreement. Examine them to solve minor problems before they become bigger ones, moderate expenditures, reduce risks, stay in stride with market demands, and preserve rapport with your business partners.

Reading the Fine Print

In the business world, when you rely on another company or contractor, you sign a contract about what goods or services they will provide you, and what financial obligation you then have towards them. That set of rules helps govern the business relationship, with both parties agreeing on consequences if the other party fails to meet its obligations.

The wording is particularly important. Poorly written contracts can be ambiguous, leading to frustration if a vendor fails to address the spirit of an agreement while following its letter, resulting in costly delays or inefficiencies. Or perhaps the agreement enacts harsh penalties on your company for relatively minor infractions outside of your control, leaving little room for maneuver and risking extra expenses that don’t match the costs the other party incurs. A contract health check simply implies looking at what a vendor supplies and ensuring it still matches your company’s needs.

How Healthy Contracts Benefit Your Business

Two key things exist in any mutually beneficial agreement. A contract should result in good financial returns, and it should not result in ongoing conflict between the vendor and user. A good contract allows either party to adapt the agreement, resolving differences as they materialize rather than let them fester. A vendor should quickly adapt to new demands in order to supply what the other party needs.

A healthy contract allows flexibility. A contract health check gives both parties a clear picture, pointing out flaws in the agreement and enabling adjustments to be easily made. In many cases, an impartial third party can help renegotiate contracts without favoring either party, which greatly smooths the process.

Choosing business partners

Partnering With Third Parties

Determining how to manage a contract that’s already in place shouldn’t be an adversarial process. After all, business arrangements embodied in contracts seek to benefit and safeguard all parties involved. Often the best way to conduct a contract health check, especially with IT and business process (IT-BP) services lies in engaging with experienced industry advisors who can offer an accurate yet neutral evaluation of the agreement.

By inspecting a contract’s details and understanding the symbiotic relationship between the parties, a contract can be modified so it’s equally palatable for everyone involved. Likely the consultant will review a contract’s health, determining how these processes converge:

  • communication channels
  • contract governance
  • delivery model
  • essential clauses
  • financial assessments
  • benchmarking

This is particularly important in the technology sector. According to Sarthak Brahma – vice president of growth for IT consultancy firm Wavestone US – “contemporary contracts suffer from a buyer-provider expectation gap that only widens in time primarily because either party didn’t delineate and articulate… key performance indicators”. In other words, the longer you wait to speak up and renegotiate an agreement, the greater the chasm between the two sides.

Best to address problems in any contract as they arise. Yes, ensuring you get what you want from a contract can be uncomfortable. The wording that seemed crystal-clear can over time may become increasingly ambiguous. A contract health check helps you distinguish fissures that open in most contracts, sealing them off to create a better deal. That will result in a better relationship with your vendor as well as a more solid bottom line.

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