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hi everyone welcome to the podcast today on contract law on contract law hints and tips with howard soper hi howard morning everyone good to be here nice to see you or not see you thank you so much for joining me and so i'm danielle goodrich knowledge product manager for sips and as i said howard is joining me today howard has extensive expertise in contract law so i'm delighted to have him join us today he's been a member of sitz for a long standing period of time and retired in 2014 and prior to that he was a fellow of the institute he has a law degree and has taken a widespread number of roles such as vice president of commercial and contracts manager and um legal director he recently completed his phd in 2018 and he's committed to sharing his expertise and best practice so it's great to have you here today howard i'm so excited and contract law is one of the key skills for contract managers and that we see all the time coming through in research it's great to have some expertise from you in this area so we've got some questions to run through you with you today if that's okay and and if you can share your tips and hints with us that would be great so first question from me then is how do you make a contract work making a contract work is one of these um areas i think that we don't pay enough attention to and um it's there are two dimensions to make your contract work one is making sure the thing is set up in the in the right way that it's clear you've got the right kind of um your incentives are clear your governance strategy is clear your kpis are clear your management structure is clear and so on and so you make it work with in several dimensions the key issue for me is always understanding the other party what does the other party think the contracts about because this is often the first thing you find out that you don't think that means the same thing um as they think it means and so you've got to try and understand that and understand if there is a gap there how are you going to bridge that gap how are you going to resolve that problem because you don't resolve it you'll end up with this poisoning the thing so you do need to sit down understand each other's understand each other's drivers that comes through various things i've put up here good formal and informal governance and the formal governance of these kind of set piece structures where you sit down and have a good discussion about what's going on what's going well not very well and informal governance is the kind of stuff where you're going to have a coffee with your with your opposite number or where you um unless you're in germany for example in the uk we sometimes go down the pub and have a beer or do something on the golf course or we have kind of um team building meetings those sort of things that's what i mean by informal governance for people who get to know each other better and understand the drivers and so on so it's always building the relationship understanding the dynamics understanding the problems that the other party has and then once you've done that give and take where it's reasonably possible try to make it work be constructive there are things that you can give away fairly easily and there are things that you can't give away um and as long as both parties understand the boundaries this has the capacity to make even quite difficult contracts work and don't play games as i say and i i know this is very tempting to play games and i've done plenty of that in my on my own account and the last thing i say and i've said this throughout my career pay on time especially long-term difficult contracts don't mess around on payment because it's almost certain that you owe them much more than you're withholding for minor stuff so just pay i can tell you i had some i had some serious experience in in facilities management contracts where our finest performing facilities management contracts were were ones and these were very these were 100 plus million facilities management contracts where the facilities management team taking the decision we pay the bill in full and we argue about it later and it took all that kind of stuff about payment off the table made you made it possible for the discussion without the background of non-payment because you can always catch up and let unless somebody owes you more than a month's month's payment you're very likely not to have a problem in paying on time so that's one of the things i said pay on time especially if you're somebody like the people i used to work for siemens or shell or we've always got plenty of money it's not not like there's not like the companies i work for were ever short of money or that didn't always feel that way and i guess further down the supply chain it's not always the case is it so um cash flow is important to those smaller businesses and smaller suppliers so yeah that's really important and i like the part you put on the building relationship yeah that's key so thank you for those brilliant these are some comments that um i got from um people when i asked them how do you make it work what do you what do you enjoy about um about contract management and they say look i i want to keep the contract in a draw that's one of the things they say i think that's a bit of a bit utopian but they talk about things like camaraderie delivery two organizations working together it's about the relationship be collegiate you can see the kind of comments that are made here and these came from people who are very very some of whom are very very senior um and many of whom are very very experienced and they talk about the the contract being a joint enterprise it's really there people want my experience is that people want to make the contract work and that has multiple meanings but they in the end they want to get the thing completed the work done and if everybody can be happy that's good if everybody can't be happy as long as we understand why they're not happy and what's driven the problems that is okay i think yeah yeah i did some good points on there actually and the stakeholders point keeping people happy and people people engage and leading the business and yeah some really good points on there thank you for sharing that okay so what does cooperation mean now when i started doing my phd which is now what was that 2015 i started doing my phd my interest was in in cooperation and contract um and what does that mean how do you first of all is it necessary and secondly what does cooperation mean so i i gave people a checklist of of what cooperation meant and i was very surprised that they're very very large number of people more than 99 who chose much more than mechanical corporations who looked at a much more mutual definition of cooperation which meant working together sharing responsibility putting party interests aside working towards a joint or a mutual goal acting reasonably and this this second bullet here is actually an edited version of a judgment by um toolson tillman tooman jay in the high court in an it case um where he said to make an it system work you've really got to work together solve the problem sort things out accept reasonable solutions and i found that people in in contract management found this to be the sort of thing they said yes that's what cooperation means so i was very i was very surprised i thought that i would get um somewhere around about 60 or 70 percent choosing these two definitions but in fact over 99 percent and chosen very um very striking finding in fact and the these are hard bitten professionals from all sorts of places from places i've worked in from people i i know and i don't know people in the university was very helpful got me a lot of people to to answer these questions so that that tells you something about what people expect in um in the management of complex contracts the second thing that i asked them was how important is cooperation again expecting that um the oh sorry if i uh no no that's fine um it looks as though we've rehearsed this almost um i um asked them how important cooperation was and i i was really astonished because again i was expecting 60 to 70 percent to talk about um what uh cooperation being um important but instead i have um well over 90 saying it's mission critical or important and people said it's key it's an absolute must um the the business dies without it and it's possible to manage without it so it was really an extraordinary um an extraordinary um finding particularly when you take it in conjunction with the previous finding that um cooperation is not mechanical cooperation it's not about sharing the same tools it's not about governance it's about actually paying attention to making the contract work if you like uh making the contract successful so this um element of how important corporation is to people in the commercial world is um is is is a very striking um finding now just to do a very minor divergence on the legal issues here um i said that the the second bulletin how contractors define is an edited version of a google principle from an i.t contract and so what i tried to do then was work out through these um through what the my respondents told me can we get this down to legal principle and indeed my my viewers you can get this down to legal principle but it's very difficult because the courts are quite courts are quite cautious in asserting widespread and complex duties to cooperate so i think if you're going to try and put it into legal principle you have to get yourself a lawyer who who can draft or a contract manager who can draft and who understand who understands the issues and the problems it's not easy but it is possible in my opinion so these two things can be can be caught in the contract but they also need to be caught by the the management of the contract people who are managing the contract have got to really try to make it work so there are two again as always there are two dimensions to the legal element and there's the management element and they and they have to work in tandem yeah good advice there thank you for that so the duty to cooperate then when it comes down to the day-to-day good communication we we all know that good communication that doesn't mean email and texts and things like that but that's included but it means going and talking to people sitting down in people's offices co-location has often been a a big a a big winner in where i've been but of course that's more difficult in the in the time of coving but yeah the location has always worked well when i when i've been in these areas professional governance meaning two things one is paying real attention to those big set piece meetings where you're saying what's going well what hasn't gone well how do we reward the stuff that's gone well how do we improve the stuff that's gone badly a real a real element of trying to make this work genuine attempts to settle issues um don't let things fester don't don't mess around get get the rubbish off the table concentrate on the big stuff delegate um the ability to settle the stuff and a right to fix defects which sounds odd but actually an english law there isn't a right to fix defects it's one of these barmy um aspects of english law that um the example i give in my book is if you're having a kitchen done a kitchen and you've had your kitchen installed and something goes wrong plug doesn't work the washer doesn't work or something do you immediately terminate the contract and sue the contractor or do you ring them up and say can you come and fix it and they always come and fix it now it seems to me that that's a absolutely simple legal principle but it doesn't apply in english law right it is barmy and taking decisions in a rational manner you know when you've got to decide what takes priority what kind of changes you're going to make um all those sort of things be fair and rational in the decisions that's not difficult that probably close to what the law is anyway close-ish um but what i what i've talked about in the theoretical element of it is the what is the interest in contract this is the sort of the legal term and i say the performance interest is the only true interest everybody is interested in having a contract performed i didn't come across anybody who said i enter into contract so i can beat up the other party terminate and make money that way everybody said i'm going to contract so i want something to be done and that's that that's the what drives my my view both of contract law and the contract management good i think that your some of your tips on there are really really helpful i think within the communication side and attempts to settle issues and i think interestingly the right to fix defects you mentioned as well not being applicable in english law but it makes sense when you put it into the context of the example you gave so why wouldn't you give the opportunity so and it seems about that two-way relationship so thank you for that well when i was it was when i was thinking about this as as an example because the kind of things i've dealt with are things like lng plants and power plants and baggage handling at um heathrow airport contracts and i thought well actually this applies to people who are having a kitchen or a garage built or an extension built when you when you've got your builder with you you operate on this cooperative in this cooperative usually in this corporate awake can you move the plug from there to there can can we have a a bracket there and things like that and and it just happens because that's how people expect to run contracts yeah yeah all right okay and this is this again is another set of the the comments on how you manage these contracts and again you see talking about treating people with respect don't be pig-headed i love some of these cards but i got yeah i was just looking at that well the one the one i like best is a friend of mine who's a vice president in a car hired business in a crisis you make friends not money and what he was referring to was in the aftermath of 9 11 when all flights in the us were grounded and he and his company had thousands of cars stranded all and thousands of customers stranded all over the u.s and they said to them all of them just take the car home drive home however far is we'll sort the mess out later and they didn't charge them anything they didn't charge them for the car hire they just said that and he said it was it was a huge boost to the business and and he said and it felt the right thing to do because everybody had a problem and i like that but it's a more general um it's a more general um thing in a crisis you make friends not money but that was that was that was a terrific conversation but you see an awful lot of this is about understanding other drivers recognize that you've got different objectives and preempt the problems lead be frank that was another thing that came through a lot people said be frank be be honest with people be straight forward don't don't mislead them tell them what the reality is so that was very um that was very very very good and the other one you can see down on the purple area pre-agreed escalation good governance and two management streams working on the executive level and that that's one of the things that really difficult for people is this idea of escalation because escalation always means trouble but it shouldn't do really it should be a just a sort of a normal process really who's got the capacity to solve this problem you know you and i can't do it do we do we root it upstairs or actually is that where it should be but it shouldn't but we all know how problematic excavation is because it seems as you're telling tales on people when you're escalating but but it really should be a professional normal day-to-day approach some good points there again i like these comments from people are really interesting to see from is this from your research that you did well it all comes from um the the comments i got when i did the i did a survey and i had about 500 respondents and because they're contract managers and lawyers and project managers they gave me 90 000 words to go wow slightly condensed then on this slide they've got some good points and it's good to see what people are thinking and living and breathing it so yeah no it's really it's really interesting thank you so if we go back to um contracts and sales then um general question but what's the basis of a good contract would you say well clarity i think is the main thing both in the um legal side the terms and conditions and in scope most um most disputes tend to come out of scope issues that's where the problem the problems tend to arise at their sharpness as scope so clarity of scope and an understanding of scope is is really important sensible and workable incentives whether they're disincentives like liquidated damages or service point um deductions sensible levels you know not not not incentives that are designed to hammer the contractor but incentives that are designed to make sure that you get what you get what you want or the contractor gets what they want so the incentives need to be designed and i i think they they should be generally both sides there should be bonuses for good performances and deductions for poor performance but they should they should be sensible and workable and clearly connected to the uh to the purpose of the contract clear measures and not too many of them so whether you're using something like a traffic light system or a or a balanced scorecard or something like that make sure your measures are clear and not too many i i once um spoke to a management team that was um collecting 250 kpis every month wow and i said it's a cottage industry it's not ridiculous but they they wouldn't come off it and and they recognized that maybe only 20 or 30 of them were actually uh were actually sensible right useful um and otherwise you get into the the area of just collecting collecting data for no particular reason so make sure your measures and your kpis are really the things you need to know and understand and understood yeah i guess it's looking at your 80 20 isn't it really on those cool things you can be proactive about rather than just a bit of everything so yeah exactly what do we really need what's going to what's going to affect performance and that's yeah and the last thing is good management teams um that that seems obvious but it's it's something that you can see from recent government reports and um especially the report that was um that came out after the carillon disaster the uk parliament uh elementary committee made the comment that um the actual management of these contracts but at front end the front end and during execution were not good from the public sector the public sector has a tendency to go for here's our standard contract now get on with it instead of managing it and that that won't work in the in the modern year of the complex contracts you need to set the contract up correctly and you need some and you need um solid management teams at both ends i'm just understanding that this is difficult because public procurement regulations can be inflexible um but that's not much of an excuse because you can actually write a flexible contract and then go through the tendering process inflexibly there's no tension between those between those two okay and the management teams need to be good and and we and we don't really train people properly in contract management it's one of the things that we still think of as a nice to have training contract managers yeah the ability to the ability to tender to construct a tender document to have it analyze to negotiate it to land the contract and to sign the contract these are all absolutely critical and to understand what's going on but we still don't quite get the idea that contract management is a real core professional skill interestingly we've got another podcast on that on them key skills for contract managers and some research came out of that some really high percentages in the 80s of contract managers who've never had any formal training or anything it was staggering and surprising to see that really and the reasons for that when you look at the skills required to manage the contract versus the upfront part of doing the tender and everything like you say to the point of signing the contract and then it almost kind of just gets handed over with no skills to manage but that part is as important if not more important to executing what you've actually written down so yeah interesting and there that you said the same thing so okay if we go into another question then so obviously it's great when things are going right but what do you do if you get it wrong now again i did a lot of um case studies on this and case studies were based on actual um actual contracts that had gone wrong one of which had reached the house of lords couple which had reached the course of appeal so and i i stuck these down as um edited them slightly and made them case studies and ask people um what they um what they do when things go wrong and um the key issues the the key to everybody was managing okay and my my first comment here would be look if you got the price wrong it's probably probably that's all you can do we all know what happens when either the client thinks she's paying too much or the um contractor thinks she's not being paid well enough um that that can be absolutely fatal and there's there's probably little you can do um but the other the other the other aspects i would say if you've got it wrong tell the truth say look we've made a mess of this what can we do how do we sort it out and keep it professional one of my um one of my um friends who was a finance director with um alstom and then siemens i think um his comment was keep your boy scout badges polished don't do be be professional don't um don't try and don't try and cheat don't play um and and and i think that's true internally and externally that you tell the boss or and your people the people on the team um what's going wrong and why and you tell your client or your contractor what's going on and why so it's communicate communicate communicate analyze the causes work through the problems and just see what you can do it's very difficult to give absolutely fundamental advice about when you when you've got it wrong but the best thing is always i think a root cause analysis discussion about problems see what you can do what what reasonable solutions can you reach how can you how can you adjust things to try and help if it's the other party you should try to help them although this this sometimes depends if if the other parties somebody if the other party somebody like shell doesn't doesn't much matter that they've got a problem with the contract well actually yes it does because it's not shelley's got a problem with the contract there's some poor cell like me who's trying to manage it and is being measured against it so always remember the human dimension when you when you've got this it's easy it's easy to think of contracts as being between commercial beer moths but but it's not really there are real human beings in there somewhere so to me it's um that again there's these two elements the corporate element and the human element um get getting it right but what do you do to get it wrong negotiate talk trim track try to make it work that's all that's all i can advise on something like that and this is a really odd case that i ask people about it's a scottish case and i keep telling people all the best cases are scots but this was a case of a very small um in agricultural harrow worth about 14 000 pounds and it went wrong and the supplier fixed it but then you wouldn't and the farmer said well what what was wrong with it and the supplier just refused to tell him it sounds incredible but it is it's a case that went to the house of lords um and um in the end and i asked i asked um my my respondents what do you what do you do um if this happens most people said nobody behaves like that so actually they do um i said sit down with the customer and then work out work out what the problem is so you have this constant refrain from people who are managing contracts look at the root cause what what is actually causing this um and then one person was quite interesting or several people were quite interested they said look if you get a report from the supplier you've got to make sure that the supplier doesn't think you're going to use the report to to to hit them with it caught luke the report's really got to be there to give you confidence rather than give you ammunition so they were they were they were quite interesting about this and and a lot of people said look talk about it negotiate discuss and that was um that was um one of the um one of the lessons try and sit down with them and talk it through although in this case actually the farmer had tried to talk it through he made multiple phone calls and they just wouldn't they just wouldn't um put it in writing what had gone wrong with it right i think it was because they were embarrassed but it was worse i have no idea how much they must have spent on legal costs but it would be a lot more than just telling you probably giving them several free arrows for the cost of this and people were saying um again you look at that piece of a piece of advice at the bottom holding back payment it's a one-off trump card doesn't doesn't work don't do it so um that that was that was quite interesting okay okay yeah no great so just to finish off then i'd just like you to see if you can kind of summarize into a few tips and for members on kind of top tips for success really or things to account for that would be great okay i haven't got them in front of me danielle can i um yes right so some of this is quite repetitive understand the other side that's really critical so that building the relationship the informal and the formal structures that you use to build the relationship and understand what's going on that's um that's really i think the most important thing try to help that's something that quite a lot of people um said be constructive do it engage constructively there's a a a word that came up again and again constructor of professional honest integrity these kind of terms came up then take this difficult decisions and take them early lead don't let matters fester otherwise you'll be discussing nonsense for months or even or even longer another thing that i found was and i asked people look if you got one side behaving badly what do you do do you go and you're going to be badly chewed you inflate invoices do you do you make claims do you do this and almost everybody said no don't do that and this is interesting because the behavioral scientists who are sort of economists and psychologists and like you'll hear a lot about behavioral science at the moment their basic theory is that tit-for-tat reciprocity is what drives human behavior well in these major contracts almost all the contract manager said no don't don't reciprocate don't behave badly they say it dig deeper trenches it makes things worse so don't do it and that was really interesting because this is at the root of an awful lot of law and economics theory and it's also at the root of a lot of what they call nudge theory is is reciprocity and actually out in the real world people tend not to reciprocate so it's something that needs to be thought about very very carefully the other thing and we we all know this kick it off internally and externally you know how these things work you know you finish the contract you chuck it over the fence to your contract manager here you go henrietta here you go wayne off you go here's a contract bye and this is wrong internally you've got to kick this off so you have a professional handover from procurement management to execution and you should keep a handle on it anyway my view the procurement department should keep a handle on it um and make sure there's a proper internal kick-off so everybody knows what's expected internally and then externally you've got that issue of sitting down with the other party making sure they understand what you you think you understand what they think you try and work work in the margins as what's not going and where there are differences but that that really sets the scene a good internal and external kickoff and building those relationships as well in the teams that that has a knock-on effect to build the building the relationships yes um and then regularly review what goes well and what doesn't go well and be clear about it why is this not going well is it something to do with the structure of the contract or is it something to do with the teams we have is it something to do with why is this not going well and why why is something going well because all too often we forget that in these contracts that huge amount of stuff is probably going really well somebody sitting in an office somewhere doing a first-class job and feeling a little bit um unregarded because their bits going well and the bits that are going wrong are getting all the attention and you really need to make sure that you you keep a balanced balanced view of this and then lastly communicate communicate communicate again i got this again and again and again don't don't sit in the office in sulk don't turn don't use email don't use formal letters communicate so that people understand what's going on so those those would be the tips and it really is all about management but the the thing that sometimes people lose sight of this there was a comment i made earlier about keep the contract in a drawer that's a bit of a fantasy really the contract the black and white elements of the contract are just as important as the elements of making of making it work because you have to remember that although people say keep the contract in the drawer i think what they mean is they don't want you getting it out and saying schedule subsection c yeah there's this what they mean is we should both understand the contract and we should understand how to make it work so keeping the contract in the drawer i think the inference behind that as we already know what the contract says so the contract is very important but it's a way the way you manage it is not to weave the document around but the way you manage it is to make sure you both understand both the hard elements of the contract that's the step in the in the black and white and the soft elements which are largely how you make it work make them work together and that requires management skills it needs analytical skills it means you have to understand the consequences of getting it wrong so there are big legal elements on this um commercial and legal elements and so the the the joy of contract for me was always that you need a range of skills and you have in the room a range of skills whether they're engineers or facilities managers or accountants or lawyers or contract managers procurement professionals or architects you always have this team effort to make a contract work that's that's what that's what i really enjoyed about it so in the end it's a team game yeah yeah that comes through what you talked about and i think what you've talked about as well also puts emphasis on soft skills to making all of this come together and leading it doesn't it and driving it forward as well so thank you so much howard and i think that that was i think and our members have really enjoyed that podcast and it's given some really useful insightful tips um and i'm hopefully we can do another one again soon and thank you to everyone for listening today hope you enjoyed that you can access all our podcast guidance on contract management and other topics at sips.org forward slash knowledge thank you very much howard and i'll hopefully see you again soon thank you