Consulting Journal: Techniques - Personalizing contracts

Techniques: Personalizing contracts

by David Blakey

Why contracts should not use 'the Customer'.

[Monday 6 October 2003]

Before word processing, contracts were often pre-printed, and the individual details that applied to each customer were typed in. The main body of the contract would contain the term the Customer or even CUSTOMER. A clause might say

This Agreement may be terminated upon mutual agreement of the Supplier and the Customer.

Because the Customer was identified at the top of the contract, it was usual to identify the Supplier in the same way. So the contract would begin with

This Agreement is between ABC Consulting (hereinafter referred to as ‘the Supplier’) and XYZ Group (hereinafter referred to as ‘the Customer’).

With the introduction of word processing, we had an opportunity to change the contract clause to a more personal style:

This Agreement may be terminated upon mutual agreement of ABC and XYZ.

Instead, word processing was used mainly to avoid leaving a space to type in the customer's name. So we often only went as far as changing the impersonal style to

This Agreement is between ABC Consulting (hereinafter referred to as ‘the Supplier’) and XYZ Group (hereinafter referred to as ‘the Customer’).

instead of using a more personal style, such as

This Agreement is between ABC Consulting (hereinafter referred to as ‘ABC’) and XYZ Group (hereinafter referred to as ‘XYZ’).

Some people resist using the personal style instead of the impersonal style. The main reason for this seems to be that they believe that the personal style is legally ‘weaker’ and that it is less enforceable than the impersonal form. I know of no circumstance where this is actually true.

You might think that this is unimportant, anyway. Why should I bother to write about it?

To a large extent, it does not matter which style you use in general contracts. If you want them to look impersonal, then that is a decision for you. I want to consider service level agreements rather than general contracts, and how a more personal style can be a better style for them.

The general contract that covers service provision will be between two organizations, such as ABC Consulting and the XYZ Group. Each service level agreement under that contract will be between individual departments within ABC and XYZ.

The role of SLAs

If you agree with my last statement, then you understand the role of SLAs. If you do not agree, then let me explain that role.

The overall contract - the head contract - is a contract for the supply to provide services to the customer in return for payment. The contract is intended to make a long term agreement.

Under the head contract, each service level agreement states that a department or division within the supplier will supply services to a department or division within the customer will be receive services to a specific level.

An example would be between a manufacturer of wing mirrors and a manufacturer of motor vehicles. The head contract would agree that ABC would supply parts to XYZ. A service level agreement under that head contract would agree that a specific division of ABC would supply and fit wing mirrors to a specific model of vehicle in specific colours and specific numbers between specific dates at specific locations of XYZ. A second SLA would agree that a second specific division of ABC would supply and stock wing mirrors as spares in specific colours and specific numbers between specific dates to specific locations of XYZ.

These two SLAs would be between the divisions of ABC that make and supply and fit wing mirrors and the divisions of XYZ that build a specific vehicle and that hold stocks of parts for it.

The people who sign the various documents can vary too. The head contract may be signed by the CEOs of the supplier and the customer. The individual SLAs may each be signed by the heads of the divisions that supply and receive each service.

The case for a personal style

These SLAs will have direct relevance to the people who have to implement them. This is good. The SLAs can promote involvement and commitment. Rather than an impression of one company supplying another company, these SLAs give an impression of one business unit supplying another business unit.

I suggest that the personalization of SLAs should be extended into the head contract. Rather than using terms like the Customer, the head contract should use XYZ. If one of the parties to the head contract was the Ford Motor Company, then the head contract would use Ford throughout.

One result would be a strengthening of the link between the head contract and its SLAs. Some clients state that the SLAs are day to day operational documents and that the head contract should be stored away and only brought out if there is a dispute. Consultants should tell them that this is nonsense. The head contract is as relevent as the SLAs. Without it, the SLAs have no real contractual or financial basis, and the relationship between a supplier and contractor is founded on contracts and finance. The supplier and customer need to keep those foundations in focus.

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