When should companies make claims with their customer?
Early and often. Companies may balk about requesting additional compensation because they worry the customer will get mad that the request was made, or that it will simply reject the request. But so what?
If you have a legitimate basis for seeking additional compensation, make it as soon as it can be properly documented and presented. If you allow the request to go stale, the likelihood of a successful, amicable resolution diminishes dramatically. Moreover, failure to make a timely claim may bar the claim by the timing provisions in the contract, or establish a course of performance that eliminates a claim altogether.
While the customer may reject the request, it is now documented and must be dealt with by both sides. Although the customer’s purchasing representative may feign anger and try to guilt company representatives into withdrawing the request, this does not impact the legitimacy of the claim. It is the purchasing department’s objective to pay as little as possible, and the customer will almost always say no the first time you ask.
Always make your claim or requested price increase as early as practical, and if it turns out that it will harm the relationship more than expected, it can be withdrawn while still obtaining mileage out of the discussion.
What is the most important thing a company can do to maximize contract value?
Recent downsizing has devastated the administrative ranks of most companies, and project management is severely understaffed. However, regardless of the size of the organization, every manufacturing and construction interest should invest in having at least one person designated to make certain that all contracts are being properly administered, including identifying and presenting claims.
Centralization provides a consistent process for contract review and comfort that the company’s position is properly documented, both internally and to the customer. Given how overburdened sales, purchasing and project management staffs are in making certain that projects are performed on time, it is easy to forget about regularly reviewing contracts to make sure the company is being fully compensated and ensuring that claims are timely documented and submitted. Putting the task in the hands of a designated person makes it much more likely that it will get done. Contract review and documentation should be upward looking to the customer and downward looking to suppliers.
While companies are focused on cost cutting, they must commit to designating and preserving staff with responsibility for maximizing contract value in real time, or they will potentially lose more than they are saving. It is far less costly to document requests for additional compensation in real time — and claims are far more likely to be successful if made at the appropriate time — rather than months or years later with the assistance of an attorney who is trying to recreate a claim, and as part of a lawsuit.
John E. Benko is a member with McDonald Hopkins PLC. Reach him at (248) 220-1352 or [email protected].
