Do you know where your firm’s supplier contracts are?
It’s very common for our legal & professional services clients to be unable to produce a valid contract with one or more suppliers of back office or IT services.
Indeed, it’s quite rare for us to come across a client with a full suite of contracts immediately to hand, let alone a clear understanding of the duration, termination provisions or other contract commercials they are party to.
This can put you and your firm at a distinct disadvantage when negotiating with suppliers, or simply knowing how to respond to a supplier notification.
Why is this a problem and what you can do about it?
Without a known repository of your contracts and a contract tracking system, you don’t know what’s been agreed, when it was agreed or why it was agreed to. This can lead to problems for your firm later down the road.
In our experience contracts are often “owned” by budget holders. What happens when these contracts have an effect on other budget holders? What happens when budget holders leave without providing clarity on the firm’s contractual obligations? Do budget holders have any incentive to review their contractual positions on a regular basis?
Contracts can be stored in desk drawers, filing cabinets, email inboxes, or your server. Worse still contracts can lie in the inboxes of junior administrative staff where there’s a higher turnover of staff – and less understanding of the implications of poor contract management.
This can leave you lost.
To some maybe it’s no surprise that 46% of firms* said their organisation had missed at least one automatic contract renewal in the past year. And that 26% had missed at least four.
Not knowing when or how to act on contract expiry can cause automatic renewal. This will lock your firm into a further contract period, sometimes as benign as 90 days, other times for a further year or – in some contracts we’ve encountered recently – a new term equivalent to the ORIGINAL 5-YEAR TERM!
Worse still, these auto-renewal clauses are often drafted to provide suppliers with the opportunity to increase prices and – most annoyingly – move you from the terms and conditions you agreed to a new set of terms without the need for your consent.
Auto-renewal is a pervasive issue; you might end up paying more for a service you no longer need over a considerable term and it may be more difficult for you to exit a contract in future.
Such provisions are found in insurance policies, software agreements, IT services contracts, telecoms contracts, records management contracts and document production contracts – imagine being bounced into paying for secondary rentals on old photocopiers you’ve already paid all the sums due under a lease agreement – and that being compounded by a rollover on the service agreement too!
Good contract management levels the playing field and gives you the opportunity to negotiate more favourable terms. Our team works with you and all your budget holders to embed the principles of contract tracking so that it’s not you that blows your top after missing a milestone.
In some cases, we’re even able to identify breaches of contract that can be remedied by substantial rebates, or by clients being released from contractual arrangements with no exit liabilities.
So, once in full possession of the facts, these situations can be retrievable, but have you ever considered where the lack of a full contract register can really hurt your bottom line, or as a Partner even your pocket personally?
According to the Journal of Contract Management, 71% of companies could not locate at least 10% of their contracts. If a contract has been lost, you may be entirely unaware of the implications of the provisions therein.
This is something we’ve discussed with legal and professional services merger & acquisition experts – if you can’t produce a contract during the sale of your firm this could slow down the deal or scuttle it altogether. In one egregious example, a small firm we encountered was unable to find a contract that, when produced by the supplier – contained a contingent liability that had grown to £200,000 over a decade, completely scuppering the sale of the firm and the retirement plans of the partners.
At the other end of the scale, we pointed out a similar liability of £700,000 to a Top-30 law firm, which due to our supplier relationships we were able to negotiate away.
So a living and breathing contracts register is imperative in looking after your firm’s costs and liabilities.
Our expert team helps you and your team to get ahead of the curve. To plan and execute tenders in a timely manner allowing a smooth glide path into new contractual arrangements – and crucially to make sure you’re not “Vendor Led” into new arrangements that don’t entirely suit your requirements.
*According to a survey by Contractworks