The biggest problem with contracts happens when the people who have made the agreement don’t fully understand the implications of the contract or later disagree about the exact wording or interpretation of the offer and what was accepted, which is made increasingly difficult if the contract is fully oral or partly oral and partly written.

Then there are the contracts and agreements imposed or drafted by a party with apparent superior bargaining strength. These may not appear to enable the consumer the opportunity to accept or reject the terms, thus to freely negotiate for mutual benefit. As a result, the party with the perceived unequal bargaining power may feel the result is an absence of meaningful choice and perhaps on the face of it a deal that appears to be offered on a take-it-or-leave-it basis with terms that are perceived as oppressive and one-sided. This by extension raises the question of whether the contract is perhaps an unconscionable bargain.

In business we accept that most people have to deal with customers and suppliers dealing across the supply chain. Therefore, whether they are aware or not, they are dealing with the business contracts irrespective of whether they are customer facing or supplier facing. Sadly however few are trained to do so. Then even those that are trained may have experience in limited areas or training that has not remained current. Often this means the terms are not aligned or have not successfully considered the business risks or captured key operational requirements in a way that dispenses with uncertainty. Nevertheless, contract law will bind the parties to make good on their mutual promises.

Many people believe that contracts are lengthy documents full of legalese. This is not so, however the right contract can make a critical difference, not just in recording what is agreed but also in providing clarification of intention which is a critical factor, and also for enforcing should that become necessary and certainly does not have to entail reams of paper. Finding the right help in this area is not easy, however, it is also not exclusively the domain of lawyers. When considering the need for help, consider what is the worst thing that could happen should the deal go belly up. Has this been sufficiently captured in a manner that removes all doubt? If not get the right level of assistance. In business it presupposes there is always a contract, even if it’s not in writing and it is generally accepted that most contracts and agreements were never intended to end up in a legal dispute. Nevertheless, it remains an obligation on the parties to ensure the appropriate levels of due diligence prior to effecting their consent.

Many companies find they have entered in contracts and various other sourcing arrangements with what they believed to be all due diligence and then lose interest in maintaining the contracted level of the relationship resulting in often hidden levels of compliancy. The parties go about their usual business, relying on the possibility of their carefully drafted contract saving the day and reducing possible problems and fall out or perhaps because you have been doing business with the other party for years the relationship will save the day. But when problems do crop up, they tend to be significant because little attention has been paid to the contracted relationship including little or no maintenance of performance along the way. Commercially, greater emphasis is now being placed on more formal vendor management efforts and, in increasingly many instances, a dedicated vendor management office (VMO) is being established within organisations for this purpose or the services are outsourced as required. Where does your business sit in managing its contracts, who is responsible, what level of training do they have, have you got contracts that are potentially risky?

Vendor Management is proud to be a leading provider of supplier performance management services. Further to this article, please take a few minutes to view our website and see how Vendor Management can help optimise your businesses outsourced supplier engagements, reduce commercial risk, reduce saving leakage and up skill staff. Call us today NZ 0800 464844 and ask us about our RISK FREE services.
Cathy has more than 20 years of experience across a wide range of disciplines including Service Delivery, FMCG, IT, Banking and Telecommunications having worked with major New Zealand and dominant global organisations. Outsource management, cost saving and contract management strategies are areas she is both professionally and personally passionate about.