Recently I published an article arguing that an SME1 needs commercial contract management services at the latest when faced with the challenges brought by digitalization. While the complexity that digitalization brings to an SME may be the tipping point at which you, the business owner or decision maker, need help, commercial contract services can support your business from its beginnings. In this article I look at the typical commercial contract services that you need and how you can obtain them in a cost-effective way.
Commercial contract needs of an SME
1. Starting your business
Your initial business may require only a few types of contracts, e.g. for sales, subcontracting and confidentiality purposes. While you may choose to use contract templates that you find online and customize yourself, a CCM can set up templates that are tailored to your business terms and provide you with guidelines and training on adapting them. Having a good understanding of your contracts gives you confidence in dealings with your customers and other contracting partners.
2. Contracting on another party’s terms
Sometimes you are not able to contract on your own business terms. A customer or a supplier may insist on using their templates, requiring you to review them before signing. In the case of uncertainty, a commercial contract manager (CCM) can perform a risk assessment to identify variations to your standard terms and provide advice that helps you decide how to respond to them. A CCM can also support you in negotiations where complex issues are involved.
3. Keeping track of deadlines and obligations
If you have more than a few contracts running at the same time, a contract lifecycle management system that keeps track of important dates and obligations can help save you from missing deadlines and incurring penalties. This can range in form from a simple spreadsheet and a manual database for storing your contracts through to specialized cloud-based contract management software. A CCM can recommend and set up a system that meets your business needs.
4. Contracts increase in complexity
Only the simplest contract is made up of general terms and a statement of work. A contract may include several annexes that describe deliverables in detail, the way in which implementation services will be performed, the governance process to be applied, etc. These annexes are usually written by different people, making it important to review the entire contract package for accuracy and alignment with the general terms. A CCM acts as a reviewer and documentation expert who manages the production of the final contract package.
5. Contract volumes increase
While the services that I have described so far can be provided as and when required by different CCMs, the advantage of developing a working relationship with the same person means that they get to know your business and staff. This results in efficiency when it comes to recurring work. While the CCM naturally imparts their knowledge and business perspective to your staff when working with them, their familiarity with your business helps in designing customized coaching and training on relevant contracting topics.
Advantage of outsourcing
Until you experience a volume of work that requires a full-time CCM, you will probably purchase commercial contract services in an outsourced model. This flexibility lets you work with a CCM who matches your needs as you grow, e.g. by working with someone experienced in your industry or in a new market that you are trying to enter. Communication and cultural fit are also important considerations. An excellent command of the language of your contracts is required to avoid misunderstanding when creating contract documentation. While international business contracts are frequently written in English nowadays, it is not necessarily the working language of the parties. It is important that communications between the negotiating parties are clear and culturally appropriate.
As with every expenditure undertaken by an SME, it is important to identify the most cost-effective model under which to obtain the commercial contract services that you need. I have identified four common ones below.
- Fixed price. You should be able to negotiate a fixed price package for start-up services, including templates, guidelines, training and coaching appropriate to your industry. The set up and configuration of a contract management system can also be negotiated for a fixed price if the project deliverables are clearly defined. Some CCMs may offer the review of a basic document, such as a confidentiality agreement, at a fixed price, or at a fixed price per page.
- Hourly. You pay only for the time required for the CCM to perform the service. Efficiencies are gained using the same CCM for subsequent work as they will be familiar with your business practices and staff.
- Package. If you need more than a few hours of a CCM’s time, you can achieve a better hourly rate if you purchase a pre-paid block of hours to be used over a fixed period, e.g. three or six months. This lets you control your spending and is appropriate if you think that you need a CCM for a lengthy project (e.g., to work on a complex contract or to support negotiations).
- Retainer. This cost model is appropriate when you need frequent commercial contract services and can estimate your need on a weekly or monthly basis. While you achieve a discounted hourly rate, any hours not used in the agreed period typically cannot be carried forward unless agreed in advance. An advantage to this model is that the CCM regularly spends time with you so does not need ramp up time for each project.
CCM services can benefit an SME from the initial creation of its contract templates through complex contracting situations and an increase in contract volume. Until your business requires a full-time CCM, an outsourced approach provides a range of cost-efficient and flexible models that allow you to control your spend on contract management services.
1SME according to Switzerland and EU has up to 250 staff