In the article “How Contracting Can Help Companies Win in a Low Prices Commodity World”, we said that you could maximize the value by managing how the contract fits in the big picture. So what does that mean?
Your business performance depends strongly on the chosen contracting strategy and how this is implemented and embedded in the way your do business or manage projects. The profitability of your business and its capacity to generate cash finds its origins in the translation of your contracting strategy into the portfolio of your commercial contracts.
Ask yourself the following questions:
- What are your key Sales and Supply contracts and are they delivering the expected value?
- Has there been a shift in the market or economy that may impact the contract?
- Do you monitor the contract performance to detect the expectation gaps on the contract portfolio? How is the contract review communicated throughout the organisation? Is the contract reviews part of someone’s job description?
- What is the root of the expectation gap? Are there mitigation plans and are they effective? Are any changes required in the mitigation plan?
- Do you have the right strategic partnership in place? Is this partnership bringing the competitive advantage to you? For both parties?
- Are the contractual terms fit for purpose and deliver the expected value adjusted for risk?
- Is the EPC contract delivering what you expected? How is scope change accommodated? Has the timeline changed? Any functionality changes? Were changes agreed, priced and justified by the asset owner?
The better you are able to reflect your business strategy in your contract design and execution, the greater the likelihood of the contract delivering the expected value from the start. It will be an iterative learning process; give it a go.