Contracting is as easy as 1-2-3… plus a few more steps after that. All it takes is a few months of excruciating deliberation, a few more months of fine-tooth reviewing and refining, and then more months or years of concentrated observation to ensure all parties are upholding the deal. Simple!
In truth, most businesses seem to make contracting as difficult a process as possible — but it doesn’t have to be. The following nine tips should help you eliminate inefficiencies in your contracting efforts, from negotiation to termination.
1. Investigate Potential Relationship
It is a waste of time and money to begin negotiating a contract with a party you don’t like or trust. If you believe you see a business relationship in an individual or entity, you must conduct some background research on them before you start discussing terms of an agreement. If possible, you should look into the party’s credit history, contact previous partners to discuss their experience, and understand what other relationships the party has. If you feel satisfied by what you find, you can proceed onto the next step.
2. Establish Important Players
Another significant waste of time is negotiating with someone who doesn’t have the power to tell you “yes” or “no.” Often, businesses encourage lower-level employees to bring in clients and negotiate terms, but they prohibit those employees from agreeing to the final deal. You should do everything you can to get in direct contact with the proper authority for your contract. This will expedite the process dramatically, allowing you both to benefit from the relationship sooner.
3. Acquire Documentation
This is the beginning of the document generation phase. First, you should acquire examples of the contract you hope to establish between your parties. Then, you should compile a list of questions you might have for the other party concerning issues that affect the contract. Finally, both parties should assemble and offer any documentation required by the contract, which might include financial statements, identification, and more.
4. Draft a Schedule
Unless you are working on a deadline, the contract process can and will continue interminably. You and your party should agree on a schedule for collecting documents, negotiating, and drafting the contract. This is especially useful if your contract requires several stages and/or a large sum of money. If the other party seems disinterested in setting a schedule, you can make one for your end and hope your preparedness spurs the other party to action.
5. Determine Foundation
Now, you can begin the negotiation phase. You should be active in the establishment of the essential terms of the agreement. You might consider creating a term sheet to help you understand what you and the other party want. Again, you should be willing to ask questions about any terms you don’t understand or aren’t comfortable with. Because this is the foundation of your contract, it is vital that you comprehend every detail.
6. Fine-Tune Terms
Once you have a preliminary agreement, you can begin preparing the initial drafts of your contract. During this process, you should perfect the terms you previously agreed upon. Alternatively, if the other party assumes responsibility for drafting the document, you should closely inspect what they produce to ensure the terms are identical to what you expect. Regardless, it is critical that the drafting process follow a tight schedule because delays can derail the relationship entirely.
7. Ensure Transaction
Once the contract is complete, signed, and stored, the process is not complete. You need to pay attention to the execution of the contract; sometimes, parties will ignore important terms in the hopes that you will not notice or will not pursue them legally. In the future, it might be more common for businesses to use smart contracts, which enforce contract terms through blockchain technology. However, due to insecurities in the tech, you should rely on your own diligence for now.
8. Stay Organized
While the contract is in effect, you need to ensure the document is easily accessed for optimal use. Contract management systems monitor contracts for their entire lifecycle, so you can be certain your contracts remain effective and beneficial.
9. Observe Performance
Your contract management system should be able to produce ongoing performance reviews of your contract. This is especially important when your contract spans an extended period of time. Performance reviews will help you ascertain that both parties are continuing to uphold the contract’s terms. When the contract reaches maturity, you can then analyze information from your system to determine whether you should renew the relationship or terminate it.