Are you frustrated with the constant to-ing and fro-ing between some suppliers and your own legal teams as they take months to finalise contract terms that often don’t add any real value to the project or its business outcomes?
We were too. Nearly 600 complex projects later, here are some key lessons learned along the way to help you safely accelerate the completion of the contract elements of your complex projects while avoiding the challenges. You be the judge of whether any of these points help to supplement your own thinking, resulting in you getting your own project contract into a great place, more quickly.
“Contract terms for complex projects can often take far too long to agree between you and your supplier (or even with your own legal team) because of the uncertainty that results from a lack of project delivery knowledge by the legal teams.” Allan Watton, CEO, Best Practice Group plc
How to speed up deals for complex contracts
While lawyers are experts in their own field, few have the very specific expertise required to draft contracts designed to drive ‘good behaviours’ between a client and its supplier to assure a project is delivered successfully. Most focus instead on ‘the risks’ of what can go wrong. Some tend to miss the point that contracting and governing for what can go wrong is a world apart from contracting and governing to assure that the project implementation goes well.
Our own experience is in both the day-to-day outcomes definition, requirements gathering, procurement, implementation and running of these complex projects, in addition to giving Expert Witness opinions in the High Court when these projects go wrong. This experience evidences that roughly 85% of disputes in complex/high-risk contracts and projects arise over suppliers/contractors and clients arguing over expectations in the client’s requirements. Suppliers argue that clients have ‘changed their requirements’, while clients argue that the requirements have merely become clearer during the implementation process as the supplier/contractor deepens its understanding of the client’s expectations and required outcomes for the project.
The potential risk of client expectations not being met tends to direct both supplier/contractor and client legal teams to focus on the ’symptoms’ of the problem and the risk of those problems manifesting themselves. The legal/commercial teams for the supplier/contractor focus on creating and drafting contract terms intended to reduce accountability for financial damages if (when) misunderstandings occur in the project. The client’s legal team focuses on maximising financial recovery from the supplier/contractor in an attempt to discourage them from doing anything wrong in the first place that will adversely impact the fitness for purpose, budget or completion time of the project.
Many months are often invested with legal teams arguing amongst themselves over the drafting of the contract for these types of issues in complex/high-risk projects. However, this process usually adds very little value to assuring the project is delivered successfully.
Speeding up the creation of complex contracts requires legal teams to be given the opportunity to acquire better knowledge of ‘how’ the project outcomes will be delivered.
The prime focus of a written contract for a complex/high-risk project should be to encourage all parties to collaborate openly and honestly and work sensibly together to deliver a fit for purpose and successful project outcome. Granted, but what happens if the supplier doesn’t deliver on its promises? What do you do then?
Yes – the contract has to take account of this, but the focus of the contract terms should be on assuring all issues are dealt with first practically, in an operational manner, to quickly resolve the issue. If the problem cannot be resolved operationally, the contractual downside has to be effectively drafted to minimise its impact on the operations and financing of the client business.
If a strategic supplier makes representations to its (potential) client, that it has deep domain expertise in the type of project that is being proposed and the client relies on those representations, then it is reasonable that the client contracts specifically for that supplier’s expertise in the expectation that the project is delivered in a fit for purpose manner, on time and on budget.
Most importantly, it often seems that some legal teams place far too little focus on contract terms that will get the project working brilliantly in the first place and encourage the ‘right behaviours’ between both supplier/contractor and client to achieve that goal, preferring instead to minimise the ‘downside’ if the project is not fit for purpose.
Six steps that no one thinks to tell you…
Six high-level steps to significantly speed up the entire contracting (and project implementation) process, end-to-end, and still assure you achieve a fit for purpose project, on time and to budget…
1. Start with ‘the project end in mind’
This is the most important point. If your own client team and internal stakeholders are clear on what benefits they want to achieve from the implementation of the project, and by when, this can be appropriately and effectively communicated to your supplier/contractor. In turn, the client and supplier project teams can communicate this to their legal teams. This clarity hugely reduces the perception of delivery and implementation risk for the legal teams.
But what is the most effective way to get clarity both internally and with potential suppliers/contractors over your requirements?
The first step in communicating this is to imagine that the project has already been delivered, it has entered a business-as-usual phase and you are now getting the expected benefits from it.
– Can you clearly articulate the expected benefits achieved, by how much and over what time frame?
– Have you articulated your ‘back story’ (why you are undertaking the project)?
– What support and advice do you expect to rely upon from any strategic supplier/contractor to assure successful delivery of the project with minimal misunderstandings over your expectations?
– Have you fully articulated any practical ‘use cases’ that align with the requirements to provide better context for potential suppliers and contractors?
– Have you undertaken an early market engagement test with potential suppliers/contractors to help you obtain an external perspective on whether your requirements and business outcomes from the project are clear and where some supplemental clarity might be helpful to avoid potential future misunderstandings?
- Why this is important. Providing this type of clarity helps both your internal stakeholders and prospective suppliers/contractors understand not only ‘what’ your requirements are, but ‘why’ they are important to you and ‘how’ they are expected to improve your business outcomes.
- What happens if you don’t do it. Simply supplying ‘functional’ or ‘transactional’ requirements provides little in the way of context for all parties, thus leading to their raising objections or misunderstandings during the procurement process, or worse still, while the project is being implemented. This often leads to significant delays in the procurement and/or contracting process, or extended timelines for the implementation. Separately, the more background context you can provide about your expectations, the more this helps potential suppliers and contractors really understand these and encourages them to think of the ’right questions’ to ask you. This ensures they flush out your real intentions and expectations that you may not have thought about articulating, due to assumptions you may have made.
2. Detailed due diligence by the supplier/contractor
This is an assured process of due diligence of client requirements and expectations undertaken by the supplier/contractor during both an early market engagement and the formal procurement and tender dialogue process. Allowing a supplier/contractor to undertake detailed due diligence of the client’s expectations is critical. It allows the supplier/contractor to use its deep domain expertise to ask the ‘right’ questions of the client to clarify its requirements and business outcomes from the project. Usually provided in this process are detailed outputs on which requirements can definitely be delivered, where compromises will need to be made and the likely impact on the client achieving its business outcomes as a result of any compromises the supplier/contractor has identified.
- Why this is important. If the supplier has a detailed understanding of the client’s expectations before any contract is signed, it will allow both parties to fully critical friend challenge and better understand what business outcomes are expected. In addition, the practicalities of whether the supplier/contractor can realistically deliver against them, outlining any key assumptions and compromises to the client, along with a clear articulation of the impact of those compromises on the business outcomes expect by the client.
- What happens if you don’t do this. Many tender processes provide poorly articulated requirements to the supplier/contractor marketplace, with finite and accelerated timelines by which to respond, usually with a statement that the supplier/contractor has validated all of the information necessary to fix its pricing and timescales. Many tenderers don’t realise that these statements are usually unenforceable if tested by a court, unless the supplier/contractor has been given a reasonable opportunity to genuinely investigate the client’s requirements through an appropriate due diligence process.
3. Collaborative workshops to crystalise client requirements
A series of workshops with both supplier/contractor and client involving their technical, project and service delivery teams to discuss clarity over expectations and requirements will supplement the due diligence undertaken in the previous step by the supplier/contractor. In this, all parties agree a ‘relationship charter’ of how their relationship will operate (formal and informal governance and performance management) to encourage a successful delivery of the project so that it is fit for purpose, on time and to budget.
- Why this is important. The due diligence process in the previous step is really important, but it is only through constructive dialogue between everyone that the supplier/contractor analysis from that due diligence can be critical friend tested and agreements made on what will finally be delivered, what will not, the compromises to be accepted and how those compromises will impact the client’s business outcomes.
- What happens if you don’t do it. By not seeking final dialogue and clarity, you still run the risk of material misunderstanding of your expectations, and in turn, a lack of certainty over the deliverables. This creates further risk and is likely to substantially delay the agreement in drafting the contract terms.
4. In principle ‘legal contracting’ workshops
In these, you explain your project requirements, expectations and business outcomes to the legal teams, before they attempt to draft the contracts. We find it very effective to encourage both your legal team and that of the supplier/contractor to sit with your own project team and the supplier/contractor’s project and sales/commercial teams. In these workshops, the project, commercial and legal teams for both sides in the room at the same time can discuss the agreed expectations (business outcomes to be achieved through the successful delivery of the project) and how the relationship [Charter] is expected to operate in practice; in terms of which party is relying on what advice, resources and so forth, and by what time the project is expected to be completed.
Potential risks and so forth are discussed, but the most import aspect is that the supplier/contractor’s legal team hears first-hand from the project teams, that the contractor/supplier is ready, willing and able to competently deliver on the client’s expectations in a fit for purpose manner, on time and to budget. A set of key aims and objectives for the project and relationship are drawn up and agreed at those workshops (there are usually two to three workshops needed to get all principles agreed and finalised).
- Why this is important. Many legal and commercial teams, on both the client and supplier/contractor’s side, are poorly informed about the background of projects, why it is important to the client, the business change the client will be expected to undertake and the practicalities of how the supplier/contractor will assure the successful delivery of the project so that it is fit for purpose, on time and within budget. Some project teams tend to ‘throw’ the contract terms to the commercial/legal teams a few days before the contract is expected to be concluded.Operating these workshops in the manner outlined above provides legal teams with better context and understanding, hugely improves certainty and significantly reduces the perceived risks, allowing accelerated and constructive dialogue to take place.
- What happens if you don’t do this. The legal teams end up having little context and understanding of the project. They then have to take the highest risk scenarios into account, even if in practical terms the individuals involved in the project know those risks are unlikely to manifest themselves. The legal teams end up arguing over roles, responsibilities and potential liabilities with no real benefit to the outcomes of the project. This significantly and adversely impacts the contract terms being agreed and finalised, albeit those contract terms are also unlikely to be fit for purpose for the nature of the project to be undertaken. So it becomes a lose-lose situation.
5. Accelerated contract drafting
Once project and legal teams are clear over expectations and have first-hand confidence in hearing how project teams will deliver the project, the design and implementation principles, agreed in the previous workshops, can then be reverse engineered and drafted into the contract terms. Each operational term in the contract is critical friend checked against the principles agreed in the workshops. If any contract terms are misaligned with these principles, they are redrafted until they meet BOTH the intention (spirit) of the principle and the principle itself.
- Why this is important. Reverse engineering the drafting of the contract terms from the design and implementation principles already agreed is critical. It helps to prevent the legal and commercial teams, from both the client and supplier/contractor, becoming distracted from the main success outcomes to be contracted for. If there are some legal and commercial advisors aiming to deliberately ‘misalign’ and/or ‘misinterpret’ principles when drafting or amending contract terms, pulling them back to the principles helps to reduce antagonism and continues to keep the process accelerated.
- What happens if you don’t do this. If you don’t use the principles agreed in the legal workshops as a sanity check list during the contract drafting process, it is our experience that the drafting dialogue starts to become reshaped towards areas that do not improve the business outcomes of the project. This often means that opposing legal teams end up ‘treacle walking’ and spending many unproductive months in dialogue and negotiations that achieve no real benefit to the successful delivery of the project.
6. Implementation commences in line with the contracting principles and contract terms
As the supplier/contractor has already used its specialist expertise to undertake due diligence and clarify the client’s expectations, along with the operational aspects of those agreed in both the contracting principles and drafted into the contract terms, the implementation process proceeds significantly more quickly and everyone is incentivised to behave in line with the relationship charter to assure a successful project outcome.
- Why this is important. Implementing the project in line with the operational contracting principles agreed and then subsequently drafted into the contract terms, means that everyone is clear as to what business outcomes are expected from the project. This also offers clarity on how it will be delivered and if either outcomes or the delivery process need to be realigned, then how the project ‘reshaping’ process will be adopted to keep everything in line with any genuinely modified business outcomes.
- What happens if you don’t do this. If clients and supplier/contractors merely follow a vanilla PRINCE2 type project management process and don’t align the project management of the implementation and roles and responsibilities in line with the ‘Expert Responsibilities’ and ‘Duty to Warn’ requirements of the supplier/contractor (which in turn should have been factored into the contracting principles and subsequently into the contract drafting), then there will be a significantly increased risk of unsuccessful completion, cost variations and time delays, while the outcome is less likely to be fit for purpose.
Around 23 years ago, we set about designing a process that would significantly accelerate the speed of getting complex deals completed and contract terms finalised, while still ensuring the implementation of the resulting project would be fit for purpose, on time and on budget. Even after all of this time, the process continues to evolve as new projects are reviewed and assured by us and new court rulings that impact the fitness for purpose of complex projects are reported upon.
There is an effective way in which to significantly increase deal velocity on highly complex, commercially high-risk strategic contracts – it’s called technical domain expertise, technical competence and/or operational specialisms. It’s the one thing strategic suppliers, clients who commission projects and the legal firms that represent both of them do not usually address in a strategic manner when drafting contracts, thus leading to ‘legal positioning’ and ‘posturing’ when it comes to both negotiating and drafting contract terms.
It is our experience across hundreds of projects that following this process of six steps, as highlighted above, significantly accelerates completing the agreement of complex contracts.
Clarity, shared between both project teams and legal teams on how the project will be delivered, significantly derisks the practical aspects. And engaging the client and supplier/contractor teams in joint workshops to fully explore the pros and cons of delivering the project ensures everyone is clear about the practicalities of the outcomes the project is hoped/expected to achieve. Fewer disagreements are then likely arise during contract drafting, which can speed up the drafting process by up to 75%.
The result is a win-win for everyone involved – contracts are completed more swiftly and with greater clarity, which reduces the opportunity for misunderstandings and clashes later on in the relationship. Expert responsibilities can be incorporated into these discussions and fully executed, and the supplier/contractor’s ‘Duty to Warn’ has a more inclusive forum for discussion and consideration during all the early stages of the relationship, allowing for better decisions to be made when it counts.