USE YOUR CONTRACTS TO INCREASE EFFICIENCY
The fifth in a series of articles on contract management.
As a business person, you may wonder what contracts have to do with efficiency. If you define efficiency, however, as using your best efforts for the greatest return, then your contracts have everything to do with it. Although most people don't think of contracts as a vehicle for increasing efficiency, your contracts can in fact be the means by which you coordinate all phases of your operations and thus perform them more efficiently and profitably.
Businesses traditionally view efficiency as the concern of the operations people, not the lawyers. Contracts, if anything, are more often assumed to be a source of inefficiency, since their preparation and negotiation are believed to be a tedious and time-consuming affair. Although this need not be the case, many business people nevertheless would rather dispense with a written contract and simply get on with the transaction, relying on a handshake. That the contract could have anything to do with efficient operations is usually never considered.
The fundamental rule for creating efficiency in business is to communicate clearly. If you can clearly describe what it is you are trying to accomplish, you will likely be able to do it more efficiently. The essence of efficient operations is the smooth coordination of all of the various aspects of your company's business, thereby enabling each phase to be performed more quickly and with less effort, so that each phase augments the others. Your contract can be used as a coordination and communication tool to achieve this objective. If the contract is viewed as a means of communication, both externally (to the client) and internally (with your employees), it can serve as a vehicle for integrating your legal and administrative documentation with your business operations, thereby allowing you to perform all those operations more efficiently.
Here are some techniques for improving the efficiency of your operations:
· Write a detailed, comprehensive description of everything your company can do for its customers. This can be a difficult task, but one that pays great dividends. It will give your employees a clear view of your firm's overall capabilities and will clarify the interrelationships between your various business functions. With clarity of vision comes greater employee commitment and efficiency.
· Use this comprehensive description as the master scope of services for your proposals. Unless your service offerings change, you need never write another scope of services from scratch. Merely delete those services you are not providing on the particular project. You should, however, list those services as potential additional services, for which you would receive an additional fee.
· Once your proposal is accepted, drop the scope of services, time schedule and fee schedule from the proposal straight into the contract as exhibits. Don't rewrite them.
· Use the contract, especially the quality standards, scope of services, and time schedule, as a blueprint for your operations people. If they don't know exactly what their company has promised to deliver, they can't provide it.
· Minimizing your company's effort, while maintaining high quality, requires a careful assessment of the scope of services requested, the time allotted for performance and the quality standards demanded by the customer. You should therefore closely coordinate your master scope of services, which describes what you can provide, with your operations manual, which describes how your employees will provide it.
· Use your contract to describe and coordinate all administrative aspects of the transaction, such as documentation of change orders, billing and collection procedures, and dispute resolution mechanisms. If you don't have an operations manual, use the master scope of services as the framework to start one or else let it serve as a temporary alternative.
· Simplify the preparation of your subcontracts by using a standard subcontract format that mirrors your obligations in the relevant portion of your prime contract with the client. Also, simply drop into each subcontract the relevant portions of the overall scope of services, the time schedule, and the compensation schedule from your prime contract.
· Your contract should require the client to designate an authorized project representative, who must be fully aware of the daily aspects of the project but who also has authority to make prompt decisions on behalf of the client so that you can stay on schedule and get paid on time. In order for you to perform efficiently, it is vital that the client understand the importance of designating an individual who can fulfill both of these roles.
If you use your contracts in this fashion, they will serve as a template for coordinating and focusing all aspects of your business operations. The result will be greater efficiency and profitability.