By Leon Steyn – CEO of Dante Deo

Agreements are a way of life for business owners. From contracts with developers, suppliers, sub-contractors and clients to your internet plan and office lease ─ almost every part of your business is regulated by the rule of contract law. Or at least, this should be how it works. And yet, the reality is that South African businesses often fall short when it comes to contracts with appropriate and binding service deliverables, the accompanying timelines needed to achieve project expectations, and descriptions of what will happen if the deliverables are not met.

The importance of contracts for businesses cannot be emphasised enough. It is the only platform from which operational security and transparency can be ensured. Contracts are made to be honoured, provide boundaries to all parties to the arrangement, and determine how the business is run. As such, for a company to operate securely and transparently, it should always aim to have all binding agreements in writing. This is considered an essential (and basic) requirement.

Yet, many companies see agreements as “legal” documents.

A contract is the foundation of the relationship

Contracts are fundamentally about relationships where the two parties agree to collaborate and establish a relationship that could last for years. And the written expression of that relationship – the contract – lays the foundation for the way ahead. A contract is, first and foremost, the legal document that serves as a record of the conditions that each party agreed to when the connection was established at a given point in time.

Let’s take a SaaS agreement as an example, where one party promises to give the other party access to software for a predetermined period. The opposing party consents to pay the service provider for the same period. But given that contracts are supposed to obligate both parties to uphold their initial agreements, what happens when these agreements are broken, and a solution must be produced to ensure optimal productivity? How should business owners equip themselves to avoid these worst-case scenarios?

Avoid vague contracts that hamper your business’s productivity

The first step is to ensure you have the most essential contracts in place to protect your business. When clients appoint service providers, they obviously want complete control over the quality of the services they receive and to make sure their investment is worthwhile. This is where a well-defined scope in a contract is essential. The agreed scope protects both clients and suppliers and sets clear guidelines, ensuring both parties are on the same page in terms of deliverables, milestones, and timelines. A client and a supplier's shared obligations, warranties and liabilities are fundamentally outlined in the contract . If one party fails to fulfil certain conditions, the contract could be terminated, but importantly, the parties involved will be protected by a properly defined scope that articulates the expectations of what is required.

By the same token, specific measures for determining service productivity are defined in the service levels. The Service levels binds a supplier to always maintain a minimum standard and outlines where and when what is expected, with suppliers fully aware of their position regarding deliveries. Clauses that speak to specific key performance areas (KPIs) and performance metrics should always be included in the contract. In the IT industry for example, these clauses should refer to the ideal server or web service uptime, issue resolution time, and support ticket response times in IT.

In addition, agreements should include a benchmarking clause for routine analyses of your contract's cost and performance requirements' competitiveness when compared to market rates and service levels. These benchmarking provisions should state that certain contract terms will be periodically evaluated compared to benchmark levels in the relevant market, locally and internationally. Prices, services, service levels, and other contract terms may change as a result of these evaluations.

Minimise risk with agreement specifics

When getting into a contract, dealing with a breach of contract is never desirable. Conflicts over breaches can become unpleasant, complicated, and costly, particularly when there are difficult factual disagreements. This is why it is integral to take full advantage of an agreement’s main purpose  - setting the foundation for the relationship and providing direction in terms of expectations and balance of risks.

By understanding what to look for in your agreement and drafting clear expectations at the outset of your client/partner agreement, you can ensure your company’s best interests are always a top priority and maximise the value of your business relationships.