Large projects many times involve a contract where interpretation is helpful.  First, my contract review services are not the same as what an attorney does, nor are they a substitute for such. Usually, the interpretation part of the review is something along the lines of what effect will the contract have on accounting? What extra work will this great contract create? What is the contract leaving out which may cost just as much as the projected savings.  This comes in many examples, but two will be presented here.

A financial services firm signed on for a new service to help with stock trades. Once implemented, the service far exceeded expectations. What was missing was a reporting section on the back-end to track and calculate the gain or loss when the trade was closed (sold).  This missing feature was extremely costly as the manual work needed to be compliant was several employees, missed compliance deadlines and lost profits due to missed error in the closing/matching transactions. This type of oversight is quite common with large contracts, especially when the technical aspects are not fully understood. See below for the full details of this experience.  As it turns out, I had the opportunity to review another client’s contract a few months later that also overlooked the back-end aspect. This was corrected during the negotiation process.

Another example was a construction project where the final (substantial) payment was to be made upon the completion of the project. Sounds straightforward. However, completion was not defined. As it turned out, once completed, the project could not “be turned on” until final inspection by the City and other regulatory agencies, which was a lengthy process. The customer felt the completion was the “turned on” date and the contractor felt the completion when the work was done.  This created major friction between the parties which carried over into the next phase of the contract. See below for the full details of this experience.

There are just two of the many examples of what I may find in such a review. The first was the oversight compounded with management’s attitude to ignore the issue as “the accounting department will fix it”. The second example demonstrated the effect of overlooking the unintended consequences of what can go wrong with seemingly standard contract wording.

Many times, my engagement may be to simply compare several contracts received. Think of this a side-by-side comparison.  But it’s more than the mechanics of the comparison; it’s also my insight, catching missing concepts, back-end effect (as noted above), and other concepts that my experience and skill set bring to the table.  Many times the review is simply a second set of eyes, a quick project.

These services have been performed for and are offered to large publicly traded companies, down to small understaffed nonprofit organizations and everything in between.

The Full Details of the Above Examples

Financial Service Firm Ignoring the Back-End Issues
A financial services firm signed on for a new service to help with stock trades. Once implemented, the service far exceeded expectations. What was missing was a reporting section on the back-end to track and to calculate the gain or loss when the trade was closed (sold) or which internal department the trade was associated with. This was a large firm with hundreds of trades per day.  The cost of reconciling the transactions was expensive both in time and missed deadlines for catching errors.  The firm was so enamored with the new system the focus was on the the front end, which turned out to be greater than anticipated, that they simply didn’t ask these questions. In this case, when the back-end question came up, management simple said “those are details for the accounting staff to work out”. The resulting cost of this oversight was well into six figures, far more than the cost of the system.  I got involved to create an automated database system with Excel as the final tool that reduced the back-end accounting to two hours per day for one person compared to 6-8 hours per day for six people. 

From a Contract Review perspective, this lack of the needed back-end feature should have been caught before the contract was signed. The discussion as to the fix using Excel as the primary tool was only added to highlight the cost difference in the oversight and after the project was complete. As it turns out, I had the opportunity to review another contract a few months later that also overlooked the back-end aspect. This was corrected during the negotiation process.

Definition of Contract Completion
Another example is a construction project where the final (substantial) payment was to be made upon the completion of the project. Sounds straightforward. However, completion was not defined. As it turned out, once completed, the project could not “be turned on” until final inspection by the City and other regulatory agencies. The customer felt the completion was the “turned on” date and the contractor felt the completion when the work was done.  What difference does it make?
Without the system actually on and producing, it’s not done in the eyes of the customer. The nature of this contract was very technical and final inspections of this nature most always required additional work. There are plenty of workable and fair solutions to this that could be added to the contract terms. Again, a thorough review of the contract before signing would catch this seemingly simple, but not-so-much oversight.