Shannon Corporation

Crazy Contracts

Summer is upon us and we are all enjoying the warm weather, baseball, beaches and golf. The construction season is in full swing, and the construction economy strong.

The political environment continues to change, The Fed keeps everyone on their toes and the pundits can’t seem to agree upon anything.

Many interesting issues have surfaced in our industry from labor and material shortages, work rule changes, to OSHA turning 30 this year!

One particular area in our industry continues to draw increasing interest, Contracts! Most that has been written or discussed concerning contracts have dealt with the legal aspects and ramifications of these often misunderstood instruments. The perils of certain clauses, what to “watch out for”!

In reviewing many of the articles and papers concerning these issues, a thought surfaced, do many of the clauses and concepts, common to contracts make sense?

Many of you reading this column would be very surprised to realize that strange language and concepts in our industry contracts are rampant and permeate the entire industry.

Sub contractors are forced to deal with retainage, up to ten per cent of their total contract! Often times, the amount is equal to their entire profit on a project, and withheld for up to one year or more. Ridiculous! How about continuing to perform extra work, lots of it, with no guarantee of how much or when they will be paid for it!

In the world on Independent Manufacturer’s Representatives, there are similar strange and hard to explain common contractual terms. Imagine a marriage spanning many years that can be terminated at any time by either party with thirty days written notice! Strange, to say the least!

Believe it or not, that is a very common ingredient in most Manufacturer / Independent Manufacturers Representative Contracts. Perhaps it would be a fair and understandable concept for new relationships, one where neither party had invested a great deal of time, effort, resources or reputation. A situation where both parties realized that they had made a mistake and that it would be best for both parties to terminate the arrangement. What about the relationship that has spanned many years?

It seems logical that the time and effort invested by either or both parties in an agreement should be a key component of any reasonable document. It should adequately reflect the real relationship and provide reasonable protection to both parties.

Is it reasonable for either a Rep or Principal Company to work diligently on a project, an important account or development of a key market sector for several years or longer, with the knowledge that either party can simply withdraw from the agreement with thirty days written notice? Why would reasonable people accept that?

Most principal / rep contracts call for compensation for orders entered within an abbreviated period of time after notification of termination, then nothing! Does that really make any sense?

Wouldn’t it be more logical to create contracts that make sense? Contracts that reflect the effort, investment and risk of the parties. Contracts that acknowledge the development of relationships between the rep and principal company. Contracts that foster a sense of trust and the desire to build a market together! Contracts that are not easy to abandon, that force the parties to work harder to achieve success.

Unfortunately we live in an era where commitment seems to make some companies uncomfortable. We are witnessing the unfortunate results! Loyalty is becoming rare, and the resulting uncertainty is having a very negative impact upon our industry.

Worthwhile business relationships are based upon a clear expression of expectations, a detailed outline of responsibilities, and an agreed upon timeline. Success must include a meaningful contribution of all parties and the desire to achieve a long term, trusting experience. It is time for members of our industry to examine what went wrong, how can we return a degree of common sense to a relatively straightforward industry? How do we work together to eliminate “Crazy Contracts”?

A good start would be mutual respect. Principal companies treat your Independent Manufacturers’ Representatives as an important part of your team! An asset to your company! Independent Manufacturers’ Representatives treat your principal companies with the respect that they deserve! A good principal is the key to your success!

Let’s work together to develop successful long-term relationships! Let’s eliminate “Crazy Contracts” and replace them with imaginative, realistic, mutually beneficial documents. Why not review your existing contracts now? Could you do better? CISCA Members work best with CISCA Members!

William L. Shannon CSI, CISCA
President of Shannon Corporation
Recipient of the 2004 De Gelleke Award