Contracts

Image via Wikipedia

Why is it that some deals go well and some don't? What is the secret to striking a great consulting deal and, if you're trying to sell one, what is the secret to closing a deal? What are the fundamental pieces to forming a deal and what can you do to avoid getting the short end of a deal?

Lets talk about deals, today. How to make sure contracts you enter into a good deal, and how to avoid bad deals. Lets cover:

1. Closing Deals
2. Why "Win-Win" deals are the only ones that work best
3. Terms and Conditions

Closing Deals

For a good number of years I worked as a leader in a couple of consulting practices. My responsibilities included selling and delivering deals. The one thing I learned early on when I was selling deals is that you need three things to get a deal closed:

1. A need
2. A budget
3. A sense of urgency

It's my experience that any deal that doesn't have all three elements on this list will not get signed. If you have two of the three, your deal won't close. I mention it only because it is very common to have the first two, but the signature authority will not sign without the urgency. Many of our sales people could talk to potential clients for hours on end about a deal... no trouble getting the meeting, even outlining a project plan and budget, but they couldn't close the deal. In the business climate, if there isn't a sense of urgency, your deal will be pushed to the back.

In other cases, there was a sense of urgency.. Lots of good discussion, but the sales people never checked to see if the people they were talking to actually had a budget. Lots of enthusiasm and need, but they were talking to the wrong people.

So, its important to realize you need all three.

Why "Win-Win" Deals are the Only Ones that Work Best.

It is all too common that the sharper negotiator gets the upper hand in a consulting deal, whether its the client or the contractor. However, when your procuring intellect, as you do in consulting, its important to recognize that you can damage yourself by breaking the other party. When you strike a "win-lose" the likelihood of any project success is severely diminished. These hardly ever work.

Lets say you're the consulting firm and end up on the LOSE side of a negotiation... The other people you will need to please on this contract are your partners/owners, and you will be forced to do everything in your power to make the deal work for them, and that includes subcontracting the work just so you can retain a profit. I find it amazing how often folks will revel in the fact that they just drove a supplier into the ground, only to be presented with the provider's "B" team. As a customer, your goal is to drive a great bargain, but to also recognize when things just look too good. When you push it that far, you're pretty much looking at a disaster in the making.

The opposite is true as well. If you are the consulting agency and you just got the sweet deal everyone has always dreamed about, be ready. It's only a matter of time before the client figures it out and starts working you out, quite possibly forever. Abusive deals may bring you great short term revenue, but can also backfire on you when someone finally figures out what is going on. Your reputation will be marred, and someone (you, or both you and the guy at the client site who signed the deal) will be shown the door. Greed may be good on Wall Street, but in the business of collaboration to successfully deliver a project, its not.

While its important to drive a good bargain, you will reach a point of diminishing returns. One way to avoid this is to figure out what is good for both sides. Contracts need to be established in a "win-win" style, especially where services are involved, or you will have a catastrophe looming in the wings. I have found in my role as a"client" who understands how consulting practices operate, that my most trusted partners will share their goals with me. Those include:

1. Profit they are trying to achieve
2. Contingency they are building into the project
3. Marketing / Reputation goals.

I, on the other hand, will share my goals with them as it relates to:

1. Assuring I get qualified and dedicated staff
2. Knowledge transition
3. Warranties

Time and Materials Considerations

I also like Time and Materials contracts with lots of signoffs. When I was in the consulting side, I would look for frequent signoffs from clients on deliverables throughout the entire project. I used to tell everyone in the practice "Your always good until the very last signature." What that meant was that if I had a client signature on a document that articulated the progress and the particular deliverable of the project we were in agreement at that time. I would make a point of saying to my clients that we would have many of these. I'd also pointed out that if they were unhappy with our services they always had the option to let us go, but I structured my frequent signoffs so we couldn't dispute any deliverable up to the point of the signoff.

I found that this no-nonsense style worked for both of us (clients and consultants) because it kept us focused on working on the project. In a fixed price contract, as a provider you are focused on meeting the absolute minimum required to maximize your profit. As a client you are focused on getting as much as humanly possible from your provider for the same amount of money.

Guess what. That doesn't work. That is founded on grandstanding and embedded beauracracy. There is no efficiency and streamling... no economy to the solution. A fixed price contract always has a winner and a loser, and often two losers. Do time and materials and you get quicker results, more elegant solutions and longer value from what will become a trusted relationship.

The Terms and Conditions

The terms and conditions is a critical piece of any contract. For anyone who's done contracts, you know that you will spend a good deal amount of time arguing IP. Keep in mind that the tools used to create your solution are rarely IP your provider can sell you. The techniques are also items consultants need to be able to redeploy. However, your specific algorithms and methods which your company owns are yours, and as a client you should protect your company from potential misuse with other clients of your consultants.

One thing I insist on doing in any terms and conditions negotiation is to make sure that whatever you discuss works both ways. Always ask yourself "Is this term fair to me and is it fair to you? What if we worded this exactly the opposite way.... does it still work?" I find that good terms and conditions are equilateral not unilateral in their structure. If you're not sure exactly whether the term you're negotiating is critical, ask for exactly the opposite, if the other side finds it untolerable, then there is an advantage that is probably inequitable. Avoid agreeing to those points.

Also, remember, that a skilled negotiator may have to give in on several points... Get a feel for what it is you are willing to trade for. Its not too uncommon to say "I'll give you this, if you give me that." In the end, the Terms and Conditions are just a structure for the delivery of the work. Often, the Ts and Cs get into a tug of war between each party's legal departments. So, it is important to be flexible, but both sides should strive to be fair.