Don’t fall for contract lock.

By Chuck Sink | August 8, 2014

Digital Image by Sean Locke Digital Planet Design www.digitalplanetdesign.comWinning a new business contract is reason for celebration and there is usually a “honeymoon” period after two companies work together for the first time. Both the client and vendor are excited and anticipate positive changes resulting from a new supplier – customer relationship. Good social chemistry between firms is usually a strong factor in the new vendor choice.

Good chemistry can sometimes spread a blind over terms & conditions in a formal business contract that would otherwise be negotiated out. Mutual goodwill and good vibes all around bring out a CEO’s pen and the potentially onerous contract terms are overlooked for a prompt authorization signature. “Let’s just do this” is the consensus feeling among both teams.

The length of the honeymoon period can vary but it usually has something to do with a transition of focus – from newness to the anticipated results of the new product/service. When things are working well and money is being made, the contract is irrelevant and forgotten. When product or service performance fails to meet expectations, that piece of paper is pulled and reviewed. Then those onerous terms begin to glare.

If poor performance continues, the client executives begin to think about ways to end the relationship early and learn from the experience. Goodwill may still remain at this point but a serious discussion must ensue. The vendor’s terms include stiff financial penalties for the client to pull out before the end date. Essentially, the client is required to pay good money and receive nothing, only because both parties could not anticipate or recognize a no-fit situation. Some companies try to protect themselves with contracts that assure they will receive every last penny, even if paid reluctantly under strict contract enforcement.

Onerous contact terms are often in the form of financial penalties for early termination. They can also be in the form of “technological handcuffs;” purposefully making it costly and tedious to make a change. Large home security companies and other technology based firms are known for this. It may work out for them in the short to medium term but eventually people will migrate to suppliers who perform well and allow them to pay as they go.

While contracts are necessary to formalize business relationships and set terms of agreement, there needs to be a fair and non-burdensome escape route for both parties. My opinion is that companies attempting to protect profitability through enforcement rather than value performance are aware of their own potential deficiencies and may be hiding them.

datingIf you’re a client willing to pay good money for products & services, the implied contract of value for payment is what’s important. The last thing you want is a resentment stemming from being locked into bad deal.

Here’s the kicker. Customers very often come back to the “old girlfriend” (or boyfriend) after checking out the “bar scene” of the marketplace and finding it wanting. Make sure your last date ended on an amicable note! In business, we can still be friends while seeing other people.

Leave a Comment

Your email address will not be published.