If you're contracting this way, please stop

A large customer wishes to buy a software as a service product from a small supplier. There is significant business value for the customer once it gets the product up and running. Although the product is standard and working with many other customers, some customisations are required that will take one month to complete.

The customer sends its standard terms, which are unreasonable, and the supplier pushes back. Negotiations drag on for six months, but eventually a compromise is reached and the deal signed. Despite the negotiations, the supplier has taken on liability far in excess of the value of the deal.

To manage the risk, the supplier made sure to spell out the customer's dependencies in the contract. The customer is treating this as a transactional relationship so under-resources the team delivering the dependencies and is clearly responsible for the few delivery delays (the supplier carefully manages the change process given the risks in the contract). The system is delivered in two months.... from the date of signature. The project is six months late and the customer loses business value. The supplier has no liability.

The customer's lawyers no doubt congratulate themselves on having locked the supplier into a robust contract that ensured delivery. Meanwhile, angels weep. True story, told to me by the CEO of the supplier (we weren't involved).

Questions to ponder:

•  Are you shooting yourself in the foot with your standard contracts?

•  How much certainty and risk transfer can you really achieve through your contracts if you want to be agile?

•  How can you best work with your suppliers to manage risks and deliver great results?

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