Four signs that your contract needs a check-up

No-one wants a big contract to fail. It’s time-consuming, expensive, and the fall-out can generate a lot of negative media coverage as well as destroy relationships. But it doesn’t have to be that way. The old adage ‘prevention is better than cure’ applies here, as much as it does to most other areas of business, but time and again that basic common sense doesn’t get applied. You wouldn’t buy a car without having it checked out first, and once you started driving it, you’d maintain it and make sure it had a yearly service by a professional. The same goes for contracts: you need to do the due diligence upfront, manage it to a plan and follow that up with regular checks via an assurance regime.

Four signs that your contract needs a check-up are:

1. You’re not sure you believe what you are being told by your supplier but you’re meant to be partners, so how can you ask?

This is a problem if you rely solely on the supplier to keep the contract’s data complete and accurate. If the supplier ‘owns’ the management information system there’s always going to be a temptation to skew the data in their own favour. Assurance checks can test the data regularly and rigorously before creative accounting becomes the norm.

2. You’re checking invoices against the previous month’s but don’t have time for a more detailed analysis 

Assurance checks can help you keep an eye on what you’re using and on your pricing terms, which helps you estimate the next invoice before you pay it. Doing this regularly gives you a picture of how demand is changing over time. You don’t want to find yourself paying invoices based on past usage levels or prices, when one or both may have changed. And if a change in usage is permanent, the contract itself will need to be updated.

3. You’ve had so many changes that you’ve lost track

Changing the terms of a contract may be unavoidable, but it does make it much more likely that problems will develop over time. If there are issues with the original terms, or the way they’re phrased, these will only get bigger if changes are made. It’s easy for both parties to lose their grip on what’s being delivered, its performance levels, and the cost. And beware the ‘domino effect’: changes to one element may have unintended consequences elsewhere, which mean that the change is much larger than it initially appears. For example, a reduction in the number of sites covered will mean lower variable costs, but it could also result in a higher rate of overhead on the remaining work. Again, regular assurance checks can help keep you on top of each change in real time, making sure all the issues are taken into account, the pricing is fair, and the revised KPIs are appropriate.

4. There’s a complex financial model lurking on the files and one day it could be used against you

The same thinking applies here. If your contract is based on a specific financial model, auditors can make sure it’s accurate and up to date, both at the start of the contract, and while it’s running. Then if you ever need to use it, it will be a familiar and useful part of the management toolkit.

 

To learn more about key themes related to contract management in the public sector, read our new publication, 'the Negotiator'.

Do you need an independent assurance check to help stop problems before they start?  Schedule a meeting to discuss your situation in confidence.

Libby Johnson |  Director
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Robert Bundock |  Senior Manager
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