Contract Negotiation and Drafting
It is common for some companies to sense that there is little-to-no leverage when negotiating a contract and terms and conditions must be accepted, no matter how bad they might be. This is especially true for younger companies that are focused on accommodating clients’ requests, even when unreasonable, with the goal of getting and keeping work. However, reality is rarely that stark.
Most developed customers recognize that contracts are tools used to reduce risk, while also recognizing that harsh and uncompromising contract terms can lead to bad outcomes. For example, if the terms are simply unreasonable, a competent service or goods provider will not accept the terms, but an incompetent one will. The reasoning is that if a provider company does not understand or care about the contract, does it really understand or care about the work? Because of this, reputable companies expect negotiations, and customers have trained negotiators and legal resources on their side.
The Cormier Firm works with companies of all sizes, types, industries, and histories in getting reasonable and effective contracts in place. The Firm has experience with projects and programs ranging in value from the thousands to hundreds of millions of dollars for work located domestically and internationally.
Contract Risk Management
Zero-risk projects or programs simply do not exist, and good companies well understand that risk is something that needs to be recognized so it can be mitigated. At its core, a contract is a tool to divide risk between two or more parties, and each party seeks to take as little risk as possible, but still get the deal done. However, if each negotiation is handled on a case-by-case basis with no guiding principles, then the risks assumed will vary from contract-to-contract and will likely go unrecognized during execution. Catastrophic consequences can result. Just as companies benefit from handling core work using consistent practices, so too can benefits be realized from approaching contracting the same way.
A best practices approach is to develop the bedrock principles that underlie the company’s strategy in negotiating contracts. In developing those principles, it is key to understand the company’s internal capabilities, market segment, competitors, current market conditions, insurance program, and other factors. Those principles should then be used as the common backdrop for contract drafting and negotiations to provide a reasonably consistent approach to risk management.
Even with developed contracting principles, each negotiation can result in different assumed risks from the contract-to-contract. However, because a company with developed contracting principles will recognize risks outside of those principles, it can mitigate those risks as a normal part of project planning and execution. Simply put, recognized risks are mitigated risks, leading to better projects and profits.
The Cormier Firm represents years of experience in assisting companies develop contracting principles and implementing a contract review program that helps companies proactively identify and mitigate risk. The Firm would be pleased to help your company do the same.
