Accelerate the Sales Contract Lifecycle

Removing hurdles between Engagement and Sales

Commercial relationships are built on trust, not contracts. It follows that commercial contracts should not be a labyrinth of complicated legal jargon. Well drafted contracts should suit the specific requirements of a business and reduce the time and money spent on contractual negotiations.

The focus should be on bringing in revenue with a minimum of fuss.  When contracts are properly structured, negotiations can be focussed on the work itself rather than the paper-work which represents it.

Standard terms of business which are not fit for purpose, especially those ‘borrowed’ from similar enterprises, can cause endless problems, particularly when negotiations are expected as part of the contract process, such as in the professional services sector.

Closing the contract

There is no need for time consuming extended negotiations when the suppliers of professional services and customised goods have got the right balance in their commercial contracts. The basic steps to conclude a deal are usually as follows:-

1. Prepare the draft contract;
2. Send to the customer for approval;
3. Review any customer comments;
4. Amend the draft agreement;
5. Repeat from step 2;
6. Sign.

Contract Reviews

Lengthy and time-consuming reviews and negotiations should be a signal that a contract is not fit for purpose. Significant time and expense must be incurred for business people to feel assured that the contract will do the job.

In the majority of cases, contract reviews and audits should be focussed and with a narrow brief on specific issues. Time wasted on your own contractual documentation could have been spent retaining the next customer.

Structuring Business Contracts

Traditional - or 20th century - contracts usually commence with the names of the parties, followed by recitals, operative provisions, testimonium and execution clauses. Any schedules and annexures appear after the execution page.

Beautiful documents if you're into that kind of thing, but are they required or necessary and, more importantly, fit for their commercial purpose?

Contracts are structured in this way to encourage the parties to read the whole contract before reaching the dotted line, which might be 15 pages into the document.

Problems with the traditional approach

There are several problems with this traditional approach to commercial contracts:-

1. Contracts which are drafted for individual customers require a disproportionate level of review and amendment. Both companies must read the contract over word for word in the context of the specific transaction. Clauses and schedules must be drafted to reflect each new customers’ requirements and specifications, in particular:-
   1. the parties to the contract;
   2. the term of the contract;
   3. warranties and indemnities;
   4. termination provisions;
   5. limitations and exclusions of liability.
2. Incomprehensive walls of complicated legal language are entirely unnecessary. The time involved to seek legal advice causes a loss of momentum.
3. The longer and more complicated the contract, the longer and more complicated the negotiations. This can lead to businesses running out of resources to take advice to properly safeguard their position. This in turn can lead to taking on unknown risks. If the contract requires an index, it is probably too long.

Another way to Structure Contracts

The law allows a flexible approach to reach legally binding agreements. Restructuring business contracts should not be an onerous task but it is one which needs to be performed with care.

1. Order Forms

Break out variable factors into an Order Form and remove them from the body of the contract. These will include:

1. The customer’s name and contact details;
2. The supplier’s contact and invoicing details, including any purchase order number;
3. The term of the contract, including an initial period and the period for automatic renewal (if any);
4. A summary of the work to be performed; and
5. Where some subject matter needs to be classified or put in a class of classes, such as “Online Delivery” or “Offline Delivery”, that designation goes into the Order form.

2. Attachments to the Order Form

What would otherwise be contained in schedules at the back of the Contract can be attached to the Order Form. These attachments should include legal obligations which vary from deal to deal, such as:-

1. The statement of works, schedule of works, specification or user requirements - This document will set out the precise details of what is to be performed.
2. service level agreements;
3. special conditions of the contract, which vary the generic standard terms of business, such as:
   1. special performance requirements upon the supplier which vary the standard terms of business;
   2. special warranties and indemnities peculiar to the particular transaction, if any; and
   3. special limitations of liability and exclusions of liability, if any.

3. Standard Terms of Business

This is where it comes together. The standard terms of business are drafted with the contents of the order form and schedules to the Order in mind. It is drafted in a way where the terms do not change and do not need to be changed, other than in extreme cases.

With a bit of knowledge on what to avoid outing into sales proposals, proposals for professional services can easily be fitted into this structure.

The theory applies to contracts used by businesses across all sectors of business. There is no industry or sector which cannot benefit from the exercise to improve their contract lifecycle from completion of the sale to completion of the formal legal terms.

Making the Change

Setting up a streamlined and focussed process for addressing specific issues will dramatically reduce the time spent negotiating, amending and taking advice on draft agreements.

If your contracts have already been prepared by a specialist solicitor, chances are that it will simply be a question of structure, not content. The time and cost required to do this is likely to be a fraction of the cost of re-drafting the agreement from scratch.

In the long run, the benefits of shortening your sales contract lifecycle will be realised again, and again and again.

Tips

The following tips might be helpful:

1. Work out which contractual terms are the same in most transactions.
2. Identify what terms your customers’ frequently try to change in your current draft contracts and consider amending those terms more towards the customer, without introducing significant risk;
3. Standardise the form of proposals, statements of work and specifications and include them as attachments to the Order Form.
4. If you regularly conduct extensive negotiations over warranties, indemnities or limitations of liability with each customer, conduct a review focussing on what can be done to amend these provisions to reduce opposition in the future;
5. Revise your old-fashioned contracts to refer to terms defined in the Order Form and attachments.

This process will highlight problem areas. Start by focussing on contract provisions which are most frequently contested, and work your way back. Consider introducing KPIs to measure the time it takes to negotiate different elements of the contract in future negotiations.

Extra Benefits

1. Spend less time and money consulting your solicitor;
2. Reduce the stress of worrying about the unknown risks in complicated legal documentation;
3. Focus your resources on running your business; and
4. Conclude contracts with greater speed and ease.

If your commercial contracts are causing more trouble than they are worth, call Leigh Ellis on 020 7353 1770. He has been structuring contracts to streamline business for repeat use for years.