Expert tip: Use contract reviews to refine, not rewrite contracts
If you are working with a client or vendor, you probably know that over the course of just a year or two, contract terms big and small can change.
Ironically, sometimes it’s the small changes that can trip you up the most.
I recall working on a project for a client with a fulfillment component, and both my colleague and I became very comfortable with the fulfillment vendor we used for a year. So comfortable, in fact, that when the project grew in scope, the changes to the orders were easy to make.
As the scope of our fulfillment project changed, our budget had increased–but not on the same scale as the orders! Before we knew it, we had just spent a huge chunk of our budget without really thinking about it. It was all so easy.
Luckily, we were able to meet fulfillments through careful cost monitoring and swapping out some items with less-expensive options. We eventually stretched our budget successfully, but a lot of effort went into the belt-tightening.
A review is an opportunity to refine
Had my team conducted a more thorough 1-year review of that contract, we probably would have caught the gap in our fulfillment strategy. We were just so thrilled to get more work that we overlooked that our unit cost stayed the same while our per unit budget fell. Not by much – but enough to create some scrambling.
We knew we wanted to stick with the same fulfillment vendor (who impressed our company and our client). So it was very comfortable to verbally convey the changes in scale.
Had we, however, conducted a one-year review, on a formal basis, you would have had several heads in the same room looking at the same numbers. A bulb would have appeared over someone’s head (I hope!).
We should have conducted a review knowing there may be “refinements” to the contract — not big changes requiring a lawyerly rewrite.
Periodic reviews plus a database equals controlled costs
The big lesson I drew from this is that it is very easy to “let things slide” on a contract — especially when both sides are happy with the relationship. But conditions, budgets, turnaround times, customer demands all tend to change over time.
A small change can have big impacts — especially if no one is documenting any changes to a contract. The reason why we at Contract Assistant advocate periodic internal and client-facing contract reviews is that we know from our customers this is a great way to catch and fix costly errors.
In a “file and forget” system using physical documents or a digital one that’s decentralized, small changes to a contract’s terms are very likely to be forgotten too.
A centralized database in which managers can save or store all pertinent contract information in one record helps prevent this — because someone is assigned to gathering and recording data in the first place!
Add to that the ability to alert key dates, and you can give your team plenty of time to plan and organize a periodic review (Contract Assistant’s Enterprise version allows for email notification as well).
If you approach the reviews with the mindset that you are looking for refinements to make you may be more likely to catch and recognize the effect of small changes in a contract that may have a big impact.