Smoothing the Way for Repeat Business

Many years ago, I learned to structure my consulting contracts in a way that encourages ongoing business. I use the same structure for some of my other ventures, too. This seemed easy and obvious to me. Since a professional associate is struggling to get a grip on it, maybe it isn’t as obvious as I thought.

Here is the essence of it for your benefit.

The contracts come in two parts. The first part is the core Agreement. It establishes the basic business relationship between my company and the client company. That means it says which of us is providing something to the other, establishes a “force majeure” waiver, what jurisdiction’s laws are the governing laws, what jurisdiction is the venue for resolving any disputes, whether we will use mediation or arbitration or courts for disputes, the framework for handling travel expenses, the “heirs and assigns” succession clause…. the basic legal foundation. It does not set specific prices, specific services or products to be delivered, or anything else that is likely to change over time.

We only execute a core Agreement once. The core Agreement typically has an initial term of 6 months or a year, but after that it automatically renews until either party provides written notice of termination. Usually 30 day advance notice is required to end the Agreement. Some of my core Agreements have been ongoing for nearly 15 years, neatly riding through the transition when a client has gone through as many as four mergers.

The core Agreement goes through the approval cycle for contracts. At big multinationals I do business with, that can require several people up the management chain to review it. Someone as high up as a VP or CFO may be required to sign it.

Each chunk of products or services to be delivered to the client gets its own Statement of Work (SOW). All the SOWs are governed by the core Agreement. SOWs simply reference the Agreement instead of needing to repeat the legal foundation.

SOWs specify exactly what is to be delivered, how it is to be paid for, and any other details pertinent to the work package. For big multinationals, SOWs correspond to Purchase Orders. As a result, an SOW only needs to go through the approval procedure for Purchase Orders.

This makes follow-on business easy. A low level manager can approve an SOW without bothering anyone higher in the management structure. After the Agreement is in place, anybody at the client company who has authority to write Purchase Orders is able to do business with my company.

As an example of where the dividing line falls, the Agreement may specify that for travel within the USA, meals and incidentals for overnight travel will be billable on a per diem basis using the rates published as standard by the federal government for the time when the travel occurs. That establishes a standard, yet allows the rates to fluctuate with inflation. It does not set rates in stone.

The SOW is more explicit about delivery details. It may specify that XYZ project will be done on a fixed price basis for $XXXXX, that travel is limited to 2 site visits by 2 people for a total of 10 staff-days, that any additional travel required by the client will cost $YYYY per person per day for labor plus travel expenses… and that the $XXXXX price is payable 25% up front, 50% before the Whozifratz Test begins, and 25% within 15 days after the client signs off final acceptance.

My SOWs are usually valid for no more than a year at a time and are constrained to a specific project. It is possible for an SOW to extend longer, but only if any prices in it have a way to float with the financial climate. For example, a longer term SOW might specify revenue on a percentage basis. Commission deals are often appropriate for SOWs that are as open-ended as the core Agreement.

If you have been using a complete Contract for every piece of business you do with every customer, consider whether a two-part system like this would fit instead. Where deals are substantial and repeat business is likely, this system makes your relationship with the client much more comfortable because it is so easy for the client to call upon you whenever the need arises.