Managing Three Difficult Client Scenarios in Contract Management
To maintain a sustainable operation, you must excel in acquiring and retaining customers. In an ideal world, organizations would always deal with clients that are easy to work with. Unfortunately, it’s unrealistic to know everything about a prospective client and what it will be like working with them.
The most common excuse for poor contract performance is to blame the client. Instead of reacting to issues as they arise, contract managers should be on the lookout for certain red flags for potential conflicts and act proactively to deliver outstanding service.
Editor’s Note: For more information, download our whitepaper on the top 10 contract management best practices.
Here are three difficult client contract management scenarios and how to manage them.
- First Time or Less Experienced Clients
When beginning the contract lifecycle with first time or less experienced clients keep in mind that they may have extraordinary expectations and may believe that anything less than perfection is unacceptable. Fortunately, it’s estimated that only 5% of clients defect because of dissatisfaction with a completely new business relationship. Close to 70% of clients defect due to intentional or unintentional indifference by the vendor, supplier, or service provider.
Therefore, the kickoff meeting and discovery sessions are essential to set your organization for success. During the initial meetings, a principal or senior contract manager must be present to develop a true understanding of the expectations and goals of the contractual relationship. Don’t rely on verbal agreements and provide a written summary of mutually agreeable decisions. And of course, use those summaries to develop a contract that establishes a clear scope of work.
- Underfunded Clients
Cost-based competition tilts the bargaining balance in favor of clients as they can set prices unilaterally, squeezing out minimum profit margins that your organization needs to maintain. While a qualification-based selection may reward organizations operating with the highest level of efficiency, a cost-based selection may punish those same firms because they are operating at a level that is too costly to bear.
When a company insists on cost-based competition to select a vendor, do some research on how past business relationships went. Constant pressure to drive costs as low as possible usually results in cost creep. Defining a scope statement, budgeting for small discrepancies, and setting expectations for change requests are some of the ways to handle scope creep in contract management.
Additionally, it’s unwise to rely on just a client’s word that a firm has adequate financing and assets to cover required expenses of any project. The burden is on you to do your due diligence. Ask for certified financial documentation and establish clear payment deadlines and budget requirements on the contract. Also, understand what your client can truly afford and whether the client has any pending financial arrangements with a financial institution.
- Boards and Committees Representing or Assessing a Client
When doing business with publicly traded companies, government agencies, and non-profit organizations, it’s common for a board or committee to represent or assesses a client. Some contracts can be so large as to require several boards and committees.
This type of client management scenario can be burdensome not only on your team of contract managers but also on your administrative team because there may be too many parties communicating with your teams from different fronts, increasing the risk of potential miscommunication and inconsistency. Make sure to clearly establish at the start of the business relationship who the authorized representative or representatives of the board or committee are to communicate with and to provide approvals. On your end, standardize all outgoing communications from your organization. All documents must look the same, including font, title block, and formatting. Consistency in formatting will make your firm look more credible and establish the proper communication channel.
Also, provide specifics in the scope of work of accepted timeframes for review and decision deadlines. Clients under close scrutiny of several constituents tend to change their mind a lot trying please as many constituents as possible. Finally, be proactive and establish adequate “cushions” in both time and budget to prevent potential problems.
The most common excuse for poor performance is to blame the client. Developing a client management plan is essential for the success of any business relationship, particularly those with the potential to turn challenging. Pay special attention to first-time or less experienced clients, underfunded clients, and clients represented or assessed by a board or committee. By setting the rules of engagement and elements of a client plan, you’re acting proactively to build a successful client relationship.