How to Improve Contracting in Your Business

If you're reading this guide, it's likely you suspect there are ways you can improve Contracting in your business. Read on - there are heaps of actionable strategies below.

Introduction

Contracting is a term used to describe entering into a business relationship with another party, such as where one party provides goods or services to the other in exchange for payment. It is impossible to operate as a business without entering into a contract to buy goods such as office equipment, paper, email software, coffee or lease a building to act as head office. Every time a business employs a staff member or engages a lawyer, that business is Contracting. 

It is therefore critical that businesses and their leadership understand their own Contracting Strategy and how they carry out Contracting. And if a business needs to improve their bottom line, a core way to do so is to optimise their Contracting Strategy and their contracts. This is one of the unique ways in which Blaze Business & Legal helps our clients move to the next level and increase their profits.

Key Takeaways

• Contracting is a popular business practice in Australia that can help reduce costs and increase efficiency.
• Understanding the policy and regulations surrounding contracting is essential for businesses to operate effectively.
• Successful contracting requires effective communication, relationship management, and compliance with regulations.

When it comes to contracting, there are a few key takeaways that individuals and businesses should keep in mind to ensure they are entering into fair and legally binding agreements.

Firstly, it is important to determine the true nature of the arrangement to perform work. As highlighted in a Piper Alderman article, recent High Court decisions have emphasized the importance of considering the actual working relationship between the parties involved, rather than just the terms of the written contract.

Secondly, businesses should ensure they have robust contractor agreements in place, as highlighted in a Norton Rose Fulbright publication. These agreements should be thorough and clearly outline the terms of the working relationship, including payment and other key details.

Thirdly, parties should take comfort in the fact that they are free to enter into contracts outlining the terms of their relationship, as confirmed in a HHG article. This principle is true in industrial relationships, including that of an independent contractor.

Finally, effective cost management practices are crucial for successful contracting, as outlined in an Accuratee article. By controlling expenses associated with the project, businesses can improve profitability, reduce risk, and enhance client satisfaction.

Overall, these key takeaways emphasize the importance of clear and fair contracting practices, with a focus on understanding the true nature of the working relationship and having robust agreements in place.

Understanding Contracting

Contracting is an essential process that involves the exchange of goods, services, or money between two or more parties. It is a legal agreement that outlines the terms and conditions of the transaction. In the industry, contracting is a common practice used for procurement and acquisition of goods and services.

To understand contracting, it is important to know the basics. A contract is a legally binding agreement between two or more parties. It outlines the terms and conditions of the transaction, including the scope of work, payment terms, and delivery dates. The contract also outlines the responsibilities of each party and the consequences of any breach of the agreement.

To ensure a successful contract, it is important to clearly define the scope of work, payment terms, and delivery dates.

In the procurement process, contracting is used to acquire goods and services from suppliers. The contract outlines the requirements for the goods or services, the delivery dates, and the payment terms. It also includes provisions for quality control and dispute resolution.

Acquisition contracting is used by government agencies to acquire goods and services from contractors. The process involves a competitive bidding process, where contractors submit proposals for the project. The government agency then selects the winning proposal and enters into a contract with the contractor.

Policy and Regulations regarding Contracting in Australia

Contracting in Australia is governed by various policies and regulations that ensure fairness and transparency in business dealings. These policies and regulations apply to both the government and private sectors, and they are designed to protect the interests of all parties involved in a contract.

One of the most important policies that regulate contracting in Australia is the Commonwealth Procurement Rules (CPRs). These rules provide a framework for the procurement of goods and services by the Australian Government. They ensure that all procurement processes are conducted in a fair, transparent, and accountable manner.

In addition to the CPRs, there are also various laws that affect contracting in Australia. These laws include the Fair Work Act 2009, which provides protections for independent contractors, and the Government Procurement (Judicial Review) Act 2018 (Cth), which allows for judicial review of government procurement decisions.

When it comes to contracts, there are several key elements that must be included to ensure that they are legally binding and enforceable. These elements include an offer, acceptance, consideration, and an intention to create legal relations.

It is important for both parties to a contract to understand their rights and obligations under the law. For example, contractors have the right to be paid for their work and to work in a safe environment. They also have the obligation to perform their work to a high standard and to meet any deadlines that have been agreed upon.

Overall, the policies and regulations regarding contracting in Australia are designed to ensure that all parties involved in a contract are treated fairly and that the contracting process is conducted in a transparent and accountable manner. By understanding these policies and regulations, businesses and contractors can ensure that they are complying with the law and protecting their interests.

Contracting in Different Industries

Contracting is a common practice in many industries, including construction, defence, and other service-based industries. Each industry has its own unique set of contracting requirements and regulations. In this section, we will explore the different types of contracting in various industries.

Construction Industry Contracting

The construction industry is one of the most heavily contracted industries in Australia. Construction projects often require a variety of skilled workers, including electricians, plumbers, carpenters, and more. Contractors in the construction industry may be hired by the project owner, general contractor, or subcontractor.

One common type of construction industry contracting is design-build contracting. In this type of contracting, the contractor is responsible for both the design and construction of the project. This can be an advantage for the project owner, as it allows for a more streamlined process and can often result in cost savings.

Another type of construction industry contracting is construction management contracting. In this type of contracting, the contractor is responsible for managing the construction process, but the design is handled by a separate entity. This can be beneficial for larger projects that require a high level of coordination and management.

Defence Contracting - Defence Industry

Defence contracting is a specialized area of contracting that involves working with the Australian Defence Force (ADF) and other defence-related entities. The defence industry is a complex and highly regulated industry that requires contractors to have a high level of expertise and security clearance.

Defence contracting can involve a variety of services, including research and development, engineering, logistics, and more. Contractors in the defence industry must adhere to strict regulations and security protocols to ensure the safety and security of sensitive information and equipment.

Other Industries

Contracting is also common in other service-based industries, such as healthcare, IT, and consulting. In these industries, contractors may be hired to provide specialized services or expertise on a project-by-project basis.

One benefit of contracting in these industries is the flexibility it provides for both the contractor and the client. Contractors can work on a variety of projects and clients can hire specialized expertise as needed. However, it is important for both parties to clearly define the scope of work and expectations to ensure a successful project outcome.

In conclusion, contracting is a common practice in many industries, each with its own unique set of requirements and regulations. Whether in construction, defence, or other service-based industries, contracting can provide flexibility and specialized expertise for both contractors and clients.

Qualities of a Good Contractor

Being a successful contractor requires more than just technical skills. There are several qualities that a good contractor should possess to ensure their success in the industry. Here are some of the essential qualities that a good contractor should have:

1. Communication Skills

Good communication skills are essential for a contractor to effectively communicate with clients, subcontractors, and other stakeholders. A good contractor should be able to communicate their ideas and expectations clearly and concisely.

2. Attention to Detail

A good contractor should be detail-oriented and ensure that every aspect of the project is executed to the highest standard. They should be able to identify and address potential issues before they become major problems.

3. Time Management Skills

A good contractor should be able to manage their time effectively to ensure that the project is completed on time and within budget. They should be able to prioritize tasks and delegate responsibilities to ensure that the project runs smoothly.

4. Problem-Solving Skills

A good contractor should be able to identify and solve problems quickly and efficiently. They should be able to think creatively and come up with solutions to unexpected challenges.

5. Professionalism

A good contractor should conduct themselves in a professional manner at all times. They should be reliable, honest, and transparent in their dealings with clients and other stakeholders.

6. Flexibility

A good contractor should be able to adapt to changing circumstances and be willing to adjust their plans as necessary. They should be able to work with clients to find solutions that meet their needs.

7. Technical Skills

A good contractor should have strong technical skills in their area of expertise. They should be able to apply their knowledge to solve complex problems and ensure that the project is completed to the highest standard.

In summary, a good contractor should possess a combination of technical skills, communication skills, problem-solving skills, and professionalism to ensure their success in the industry. By having these qualities, a contractor can build a solid reputation and establish themselves as a reliable and trustworthy professional in their field.

Use of Contracts

Contracts are legally binding agreements between two or more parties that outline the terms and conditions of a particular business relationship. The primary purpose of a contract is to establish clear expectations and obligations for all parties involved, which can help prevent misunderstandings, disputes, and legal issues down the line.

Contracts are used in a variety of contexts, including business transactions, employment agreements, service agreements, and more. They are especially important in situations where large sums of money or valuable assets are at stake, as they provide legal protection and recourse if one party fails to uphold their end of the bargain.

Some of the key benefits of using contracts include:

• Clarity and certainty: Contracts provide clear guidelines and expectations for all parties involved, which can help prevent misunderstandings and disputes. By clearly outlining the terms and conditions of a particular business relationship, contracts can help ensure that everyone is on the same page from the outset.
• Legal protection: Contracts provide legal protection for all parties involved, as they establish clear rights and obligations that can be enforced in a court of law. This can help prevent disputes and provide a legal remedy if one party fails to uphold their end of the bargain.
• Risk management: Contracts can help manage risk by outlining the responsibilities and obligations of each party involved. By clearly defining the scope of work, timelines, payment terms, and other important details, contracts can help ensure that everyone is aware of the risks and responsibilities involved in a particular business relationship.

Overall, the use of contracts is essential for businesses and individuals who want to establish clear expectations and protect their legal rights. By taking the time to draft and negotiate a well-written contract, parties can help prevent misunderstandings and legal issues down the line, and ensure that everyone is on the same page from the outset.

Statement of Work

A Statement of Work (SOW) is a document that outlines the scope of work, timeline, deliverables, and payment terms for a project between two parties. It is an essential part of a contract between a client and a contractor, as it sets the expectations and responsibilities for both parties.

The SOW should clearly define the project's objectives, including the goals, deliverables, and timelines. It should also specify the payment terms, including the payment schedule and the payment method. The SOW should be detailed enough to ensure that both parties have a shared understanding of the project's scope and requirements.

The SOW is typically an output-focused document, meaning it outlines the results that the client expects to achieve. It should also include any specific requirements, such as the use of certain technologies or adherence to certain standards. The SOW should be written in clear and concise language, avoiding any jargon or technical terms that the client may not understand.

In summary, the SOW is an essential document for any project between a client and a contractor. It outlines the project's scope, requirements, and payment terms, ensuring that both parties have a shared understanding of the project's expectations and responsibilities.

Contracting Process

The contracting process is a series of tasks and activities that are defined differently by each individual company. The process involves several stages from tendering to contract disputes. Here are the sub-sections that form the contracting process:

Tendering

The tendering process is the first stage of the contracting process. It is a formal process in which organizations invite bids for large projects or purchases. The process usually includes the publication of a request for tender (RFT) or request for proposal (RFP) document, which outlines the requirements of the project or purchase. The RFT or RFP document also includes the evaluation criteria that will be used to assess the bids.

Contract Review

Once the tendering process has been completed, the organization will review the bids received. The review process is designed to ensure that all bids meet the requirements outlined in the RFT or RFP document. The organization will also assess the value for money of each bid.

Contract Negotiation

After the contract review process, the organization may enter into negotiations with the preferred bidder. The negotiation process is designed to ensure that the contract meets the requirements of both parties. During the negotiation process, the organization may make changes to the contract to reflect the needs of the project or purchase.

Awarding the Contract

Once the negotiation process has been completed, the organization will award the contract to the preferred bidder. The award process involves the signing of a contract between the organization and the preferred bidder.

Contract Execution

The contract execution stage involves the implementation of the contract. This stage includes the delivery of goods or services, as well as the payment of invoices.

Contract Performance

During the contract performance stage, the organization will monitor the performance of the contract. This stage involves the assessment of the supplier's performance against the requirements outlined in the contract.

Contract Management

The contract management stage involves the ongoing management of the contract. This stage includes the management of any changes to the contract, as well as the management of any disputes that may arise.

Contract Disputes

In some cases, disputes may arise during the contract management stage. The organization and the supplier will work together to resolve any disputes that arise. If the dispute cannot be resolved, the organization may terminate the contract.

Overall, the contracting process is designed to ensure that organizations receive value for money when purchasing goods or services. By following a structured process, organizations can ensure that they select the most suitable supplier for their needs.

Essential Contracting Tools

Contracting is an essential part of any business, and having the right tools can make all the difference. Here are some of the essential contracting tools that every business should have.

Contracting Templates

Having a set of contracting templates can save a lot of time and effort. Templates can be used for a variety of documents, such as proposals, contracts, and invoices. They can be customized to fit the specific needs of the business and can be used repeatedly.

Workflows

Creating workflows can help streamline the contracting process. Workflows can be used to define the steps involved in the contracting process, such as creating a proposal, negotiating the terms of the contract, and finalizing the agreement. Workflows can help ensure that all necessary steps are taken and that nothing is overlooked.

Processes and Procedures

Having clearly defined processes and procedures can help ensure that the contracting process runs smoothly. Processes and procedures can be used to define how proposals are created, how contracts are negotiated, and how invoices are processed. Having clearly defined processes and procedures can help ensure that everyone involved in the contracting process understands their role and responsibilities.

Contract Management Software

Contract management software can help manage contracts from start to finish. It can be used to create and store contracts, track changes, and manage renewals. Contract management software can also be used to track performance metrics, such as contract value and renewal rates.

Cash Flow Forecasting

Cash flow forecasting can help businesses manage their finances. It can be used to predict future cash flows and identify potential cash flow problems. Cash flow forecasting can also be used to identify opportunities for growth and investment.

Best Practices in Contracting in Australia

Contract management is an essential component in achieving value for money for Australian Government procurements. The Australian Government Contract Management Guide, published by the Department of Finance, outlines the best practices in contracting in Australia.

The guide highlights the importance of establishing stakeholder engagement mechanisms, oversight arrangements, systems, processes, decision making, and reporting. This is known as Contract Governance. It is essential to ensure that the contract is aligned with the agency and wider government objectives.

Performance Management is another critical aspect of contracting. It involves measuring, monitoring, and assessing against agreed performance measures. This ensures that the contract is meeting the desired outcomes and delivering value for money. Regular performance reviews and reporting are essential to manage risks and identify issues early.

The 12 Best Practices in Contract Management, published by the Cullen Group, provides further guidance on the subject. The best practices are divided into two categories: Control and Interact. Control practices include ensuring performance, watching over finances, record keeping and reporting, and audit compliance of the parties. Interact practices include investing in the relationship and managing change.

The Best Practice Guide to EPC, published by the Energy Efficiency Council, provides guidance on Energy Performance Contracting (EPC). The guide highlights the importance of developing a clear project scope, setting realistic targets, and engaging with stakeholders. It also emphasizes the need for a robust measurement and verification plan to ensure that the expected savings are achieved.

In summary, best practices in contracting in Australia involve establishing effective contract governance and performance management practices. It is essential to align the contract with agency and government objectives and regularly measure and monitor performance against agreed-upon measures. Investing in the relationship and managing change are also critical to success.

How Can You Improve Contracting in Your Business?

To improve contracting in your business, it is essential to have a well-defined contract management process. A good contract management process can help you negotiate better contracts, reduce risk, and improve your bottom line.

Here are some tips to help you improve contracting in your business:

1. Assess Your Current Contract Management Process

The first step to improving your contract management process is to assess your current process. You need to identify the strengths and weaknesses of your current process and determine areas that need improvement. This assessment will help you identify gaps in your process and develop a plan to address them.

2. Standardise Your Contracting Process

Standardizing your contracting process can help you achieve consistency and efficiency. By creating a standard process, you can ensure that all contracts follow the same steps and are managed consistently. This can help reduce errors and improve the quality of your contracts.

3. Train and Upskill Your Employees

Training your employees on the contract management process can help ensure that everyone is on the same page. It can help improve communication, reduce errors, and ensure that everyone understands their role in the process.

4. Use Technology to Streamline Your Process

Using technology can help streamline your contract management process. There are many contract management software solutions available that can help you manage your contracts more efficiently. These solutions can help automate tasks, reduce errors, and improve collaboration.

5. Negotiate Better Contracts

Negotiating better contracts can help improve your bottom line. To negotiate better contracts, you need to understand your rights as a contractor and be prepared for negotiations. Good preparation is essential for successful negotiation. It will give you more confidence to negotiate and improve your chances of getting an outcome that works for you.

Cost and Currency in Contracting

When it comes to contracting, cost and currency are two important factors that need to be considered. The cost of a contract can vary depending on the scope of work, the complexity of the project, and any potential variations that may arise during the project. It is important to have a clear understanding of the scope of work and any potential variations to ensure that the contract is priced correctly.

In addition to cost, currency is also an important consideration in contracting. When entering into an agreement with a business in a foreign country with a different financial system, the currency of the contract is an important consideration. There are risks associated with foreign currency contracts, including counterparty risk and the potential for fluctuations in exchange rates.

To mitigate these risks, it is important to consider currency futures and to have a clear understanding of the spot rate versus futures rate. It is also important to consider the counterparty risk associated with the contract and to ensure that appropriate measures are in place to manage this risk.

When it comes to managing costs in contracting, it is important to have a clear understanding of the scope of work and to ensure that the contract is priced correctly. This may involve negotiating with the contractor to ensure that the price is fair and reasonable, and that any potential variations are accounted for in the contract.

In addition to negotiating the price, it is also important to consider payment terms and to ensure that they are fair and reasonable. This may involve establishing a payment schedule that reflects the scope of work and the timeline for completion of the project.

Overall, cost and currency are two important considerations in contracting. By carefully considering these factors and taking appropriate measures to manage risk, businesses can ensure that their contracts are priced correctly and that they are able to manage any potential risks associated with foreign currency contracts.

Training and Upskilling your Staff for Better Contracting

Contracting can be a challenging and competitive field. To stay ahead of the game, it's important to have a skilled and knowledgeable team. Training and upskilling your staff is crucial to achieving this goal.

Training can take many forms, from on-the-job training to formal classroom training. It's important to identify the areas where your staff need improvement and provide training accordingly. This could be in areas such as project management, communication skills, or technical skills.

Certification is another way to demonstrate the skills and knowledge of your staff. Certification programs are available in many fields and can provide a standardised measure of competency. This can be particularly important when bidding for contracts that require specific qualifications or certifications.

Upskilling is a longer-term investment in augmenting the knowledge, skills, and competencies that help employees stay relevant and competitive. By upskilling your staff, you can ensure that they are prepared for the challenges of the future. This could involve providing training in emerging technologies or new business practices.

It's important to create a culture of continuous learning within your organisation. Encourage your staff to take ownership of their professional development and provide opportunities for them to learn and grow. This could involve attending conferences, workshops, or industry events.

In summary, training and upskilling your staff is essential for success in contracting. By investing in your staff, you can ensure that they are equipped with the skills and knowledge needed to excel in their roles. This can lead to improved performance, increased competitiveness, and better outcomes for your clients.

Building the Best Relationship with the Client

Building a strong relationship with clients is essential for any contractor. Not only does it help establish trust and credibility, but it also leads to repeat business and referrals. Here are some tips to help build the best relationship with the client.

1. Be Honest and Transparent

Honesty and transparency are key elements of building a strong relationship with clients. Contractors should be upfront about their capabilities, limitations, and any potential issues that may arise during the project. This helps establish trust and credibility with the client, which is crucial for a successful project outcome.

2. Communicate Effectively

Effective communication is essential for building a strong relationship with clients. Contractors should communicate regularly with the client to provide updates on the project's progress, discuss any issues that may arise, and clarify any questions or concerns the client may have. This helps ensure that everyone is on the same page and that the project is moving forward smoothly.

3. Embrace Technology

Embracing technology is another key element of building a strong relationship with clients. Contractors should use technology to streamline communication, project management, and invoicing. This helps ensure that the project runs smoothly, and that the client is kept up-to-date on the project's progress.

4. Provide Excellent Customer Service

Providing excellent customer service is crucial for building a strong relationship with clients. Contractors should be responsive to the client's needs and concerns, and should go above and beyond to ensure that the client is satisfied with the project's outcome. This helps establish trust and credibility with the client, which is essential for repeat business and referrals.

5. Enforce Solid Contracts

Enforcing solid contracts is another key element of building a strong relationship with clients. Contractors should ensure that all contracts are clear, concise, and legally binding. This helps protect both the contractor and the client, and ensures that everyone is on the same page regarding the project's scope, timeline, and budget.

In summary, building a strong relationship with clients is essential for any contractor. By being honest and transparent, communicating effectively, embracing technology, providing excellent customer service, and enforcing solid contracts, contractors can establish trust and credibility with clients, leading to repeat business and referrals.

Working with Suppliers and Subcontractors

When businesses contract out work, they may need to work with suppliers and subcontractors to get the job done. It is essential to establish clear expectations and understand the roles and responsibilities of each party involved.

Suppliers

Suppliers are businesses that provide goods or services to another business. When working with suppliers, businesses should:

• Research potential suppliers to ensure they are reputable and reliable
• Clearly define the goods or services required and the delivery timeline
• Negotiate pricing and payment terms upfront
• Establish communication protocols to ensure any issues or delays are promptly addressed
• Monitor supplier performance to ensure they are meeting expectations

Contractors

Contractors are businesses that are contracted to perform specific work for another business. When working with contractors, businesses should:

• Clearly define the scope of work and deliverables required
• Establish a timeline for completion and any milestones
• Ensure the contractor has the necessary skills and qualifications to perform the work
• Negotiate pricing and payment terms upfront
• Establish communication protocols to ensure any issues or delays are promptly addressed
• Monitor contractor performance to ensure they are meeting expectations

Subcontractors

Subcontractors are businesses that are contracted by a contractor to perform specific work as part of a larger project. When working with subcontractors, businesses should:

• Ensure the contractor has obtained the necessary approvals and licenses to engage subcontractors
• Clearly define the scope of work and deliverables required
• Establish a timeline for completion and any milestones
• Ensure the subcontractor has the necessary skills and qualifications to perform the work
• Negotiate pricing and payment terms upfront with the contractor
• Establish communication protocols to ensure any issues or delays are promptly addressed
• Monitor subcontractor performance to ensure they are meeting expectations

By following these guidelines, businesses can effectively manage their relationships with suppliers and contractors, ensure clear communication, and achieve successful project outcomes.

Conclusion

Contracting is a crucial aspect of any business, and it is essential to ensure that all parties involved understand the terms and conditions of the agreement. A clear and concise contract that outlines the obligations and responsibilities of each party is necessary.

Collaborative contracting is becoming increasingly popular, and it involves a more cooperative approach to contracting between parties. This approach has the potential to reduce costs, improve efficiency, and increase the quality of the final product or service.

However, managing contracts can be challenging, and contracting teams at large organizations manage an average of 19,000 contracts a year. The busiest manage over 50,000 a year. This workload can lead to contracting complexity, which can hide clear profitability.

In conclusion, contracting is a critical aspect of any business, and it is essential to have a clear and concise contract that outlines the obligations and responsibilities of each party. Collaborative contracting can be a beneficial approach, but it is crucial to manage the workload effectively to avoid contracting complexity.

Frequently Asked Questions

Contracting can be a complex process, and it is common for individuals and businesses to have questions. Here are some frequently asked questions about contracting:

What is a contract?

A contract is a legally binding agreement between two or more parties. It outlines the rights and obligations of each party and sets out the terms of the agreement. Contracts can be written or verbal, but it is always recommended to have a written contract to avoid any misunderstandings.

What is the difference between a contract and an agreement?

The terms "contract" and "agreement" are often used interchangeably, but there is a subtle difference between the two. An agreement is a broader term that refers to any understanding or arrangement between two or more parties. A contract, on the other hand, is a specific type of agreement that is legally binding.

How do I know if a contract is enforceable?

For a contract to be enforceable, it must meet certain criteria. The contract must be entered into voluntarily by all parties, and all parties must have the capacity to enter into the agreement. The terms of the contract must be clear and specific, and the contract must not be illegal or against public policy.

What happens if one party breaches a contract?

If one party breaches a contract, the other party may be entitled to damages or other remedies. The specific remedies available will depend on the terms of the contract and the nature of the breach.

Do I need a lawyer to draft a contract?

While it is not always necessary to have a lawyer draft a contract, it is recommended. A lawyer can ensure that the contract is legally binding and that all necessary terms are included. They can also provide advice on any potential issues or risks.

Can a contract be amended?

Yes, a contract can be amended if all parties agree to the changes. It is important to document any changes in writing and to ensure that all parties sign the amended contract.

How long does a contract last?

The length of a contract will depend on the terms of the agreement. Some contracts may be for a specific period of time, while others may be ongoing until one party terminates the agreement.