When assessing a contract for risk, we naturally focus on areas such as limits of liability, warranties and intellectual property. Whilst these are important, you should not disregard clauses that may appear to be innocuous based on their heading alone.
Take, for example, a clause on ‘reporting’. You may feel comfortable reporting on your obligations to your clients, your achievement of service levels and availability of your service, but how does your client require/expect this to be reported?
There are 5 key things to consider when assessing any reporting obligations:
Risk 1 – is the data readily available?
What does the contract require you to report on? Is this part of your usual performance metrics, so that the data is readily available to you? If not, can your systems, processes and records be easily amended to capture the new reporting requirements? Perhaps manual intervention is required?
If collecting the new data has to occur manually, how long will it take and who will do it? Will the performance of the manual activity limit reduce revenue-generating opportunities for the individual(s) concerned? The time and cost impact of collecting appropriate data to meet your reporting obligations should be factored into performance timescales and project financials.
Risk 2 – how often is reporting expected?
What’s the frequency of reporting specified in your contract – daily, weekly, monthly, quarterly? What do you typically do?
Often, the customer’s reporting requests will increase your administrative burden. Pulling the data together in the format specified in the contract or agreed with the client takes time and effort. Factor this time into your project or service plan to ensure if doesn’t get in the way of your main delivery obligations.
Risk 3 – how do they want the data?
Is there a specified format for reporting, and is it what you would normally use? If not, check whether there are costs involved in providing the client with the requested format. For example, you may need to license new software in order to deliver a report in a particular format.
Risk 4 – how do they receive the data?
This can be a huge source of unscheduled cost and time impact on a project. Is it acceptable for you to deliver the reports to your client via email? The contract may require you to walk the client through the report in a conference call, or even to present the report in person at the client’s premises.
Many contracts simply state a reporting obligation without being specific about how the data is to be delivered. Each party then makes different assumptions – you might assume that email would be fine, whereas the client may expect you to travel (even hundreds of miles) to their offices to deliver the data personally. If the contract isn’t clear, ask the question and set out the details in your agreement.
Risk 5 – what do they do with the data?
Perhaps the biggest risk of all is what happens to this wonderful data you’ve reported to your client? It may sit in someone’s inbox, unread and unexamined, until a dispute arises. Then it will be pored over with a magnifying glass, to find evidence of wrongdoing or poor performance on your part. Alternatively, each report you deliver may be used to calculate service credits, liquidated damages or other amounts due to your client.
Looking at this positively, if performance is better than expected the reports may generate bonus payments. They can provide a valuable management insight into areas of excellence and points for development and improvement. Think about the purposes to which the data will or could be put, and bear them in mind when considering the first four reporting risks.
When considering reporting requirements, think about your costs in complying with your client’s reporting needs. Costs may be created by time spent, resources used, travel and missed revenue from this or other clients.
In short, anything that falls outside your standard practice will have a cost associated with it and you should factor these costs into your pricing and risk management discussions. Understanding these costs and the uses to which the data will be put can help you avoid unexpected project losses, manage expectations and enable you to deliver exactly what your client needs from you. So everybody’s happy.
Devant’s contract reviews and negotiation planning sessions focus on the things that make a real difference to your business. Let us know if you’d like support figuring out what a contract means to you in practice.
Principal Consultant, Devant Limited