Bassel Ghoubar, Group Legal Counsel At EFS Facilities Services Group: Service Contracts From Conventional Theory Into Partnership
December 26, 2021

“Please sign the compliance statement for the contract terms and conditions” is a common stipulation insisted upon by most clients at the outset of any contractual relation, whether for rendering services or the purchase of goods. The rationale for imposing such a statement on suppliers is presumably meant to preserve the client’s best interests. However, the outcomes of such contractual ties are adversely impacted for several patent and latent reasons.

Some of these reasons relate to the client and others relate to suppliers as contractual parties. For example, client’s counsels tend to exclude the supplier’s objectives from the contract and impose unilateral provisions and termination clauses, while failing to decrease the contract price. Such practice flips the contract into a lose-lose situation, where the client has burdened the supplier with unfair clauses and obligations.

On the one hand, the result is a client controlling the contractual relationship without obtaining the benefits out of the contract. What’s more, they can incur further cost due to plans to replace supplier. On the other hand, the supplier is cornered into either absorbing the losses of executing such a contract or accepting the loss of revenue due to client retention failure. Both cases expose the supplier to contractual instability and limit its appetite to bring value investments to the client’s business.

Despite customer acquaintance with the vital role of suppliers in ensuring their business continuity, most clients tend to act otherwise by bringing their organizations’ targets into negotiations while totally neglecting the suppliers’ objectives. This conventional approach may serve for the short run but will absolutely fail in achieving long-term goals.

It is time for a significant transformation in clients’ approach and for a new contractual methodology that serves mutual objectives of the contractual relation. The methodology of bringing suppliers on-site for service delivery has completely changed from unilateral benefits of contractual parties to mutual benefits of contractual parties.

A healthier contractual relationship must focus on mutual benefits. It should also strike a balance between commercial motives and aspects of the partnership including common values, vision, integrity, and governance structures. These are the factors that enhance the achievement of contractual objectives, serve the best interests of both parties and sustain a long-term partnership. To work, this contractual balance requires all parties to be transparent and to bring to the table their clear intentions and will to build a robust partnership.

In addition to setting the proper contractual concept, contract drafting plays a significant role in achieving the client’s strategic goals and attracting healthy business partners. It is a common mistake among companies to treat contracts as a purely legal document to be prepared by either external lawyers or in-house counsels with the aim of reserving all client rights and depriving suppliers of their rights to protect their business.

Such contracts are deemed to be constitutional documents to be taken in their entirety, without any tweaks to fit the purpose of each project. To rectify this, drafting contracts should be underpinned by partnership spirit, as well as legal expertise, commercial prudence, and technical reliability. This will result in a document that touches upon the interests and objectives of the supplier in tandem with those of the client.

There is no doubt that the new concept of contracts is becoming a requisite, but it is not meant to completely replace conventional contracts. The key to contractual success lies in realizing that the contract is no longer about “what I want” but rather, “what we want.” To this end, it is important for all parties to define their objectives, identify what they have in common, and determine how flexible they are in overcoming their differences in order to develop document that sustains seamless performance by both parties. Tactical leaders will only pursue the company’s best interests when they establish a promising environment that works for all.

 

Source: Forbes Middle East

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