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Endless Contracts: New Normal

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Peru Consulting 22 Jun 2020 Time to read: 

Talking to our channel partners at Future Processing, they, and I suspect many others, have spotted that IT buyers are showing marked reluctance to enter into long term contracts in the current trading environment. Its little wonder given the constantly changing dynamic of the pandemic and its multi-faceted impact on everything from consumer buying habits to work styles and business strategy…who would want to be locked into a 5-year contract when the market outlook over the next 5 weeks is difficult to predict.

So, if that is the obvious problem what is the answer? Fixed term contracts in a form broadly similar to today’s have been around since the latter half of the 19th century. Buyers have liked the certainty of provision of goods and services over a well-defined term and naturally suppliers…and suppliers accountants, like the concept of predictable annuity revenues.

So somewhere between these extremes of not entering into any contracts and not wanting to be tied down to long term contracts when the future is so uncertain, something has to give right?

Well how about the concept of an endless contract? An endless contract is a contract with no fixed term or expiry date (in practice parties may agree to put a longstop date in, old habits die hard). In an endless contract the focus shifts from time to metrics such as service requirements, commercial requirements and innovation. Both the customer and the service provider agree a schedule, let’s say initially once a quarter, whereby they review those key metrics, identify any changes required and course-correct the terms to align to any changes required.

Naturally, there may be occasions where the course correction is just too large for one or both parties to absorb, but at least working to the endless contract principles means this will be identified sooner rather than later allowing for managed exit provisions to be undertaken.

Over time, as the level of uncertainty and change hopefully reduce, the review cycle can be relaxed to bi-annual or even annual, with normal service governance arrangements backfilling the quarterly contract reviews.

Clearly there are number of other considerations to endless contracts. We would be really interested to hear everyone’s views on this concept: unworkable or the only way forward in the new normal?

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