The Contract Process

This is the first article in a series on the negotiation and management of security service contracts. As will become clear during the next 5 articles agreeing written contracts for security services is a difficult yet important process. The contracts deal with issues of high risk, are often for long terms and their content is both complex and specialist.

Managing the process is no simple task as the parties need to co-ordinate large teams and resolve difficulties whilst also attempting to achieve milestones in a timely manner. Additionally, negotiation can often be lengthy, testing the goodwill of both sides. The process of negotiating and finalising the contract itself deserves special attention along with key terms which often prove difficult to negotiate, so this series will deal with both the process and those key terms. Although there are no ‘shortcuts’ there are certainways the process can be managed to ensure it is both smooth and time efficient.

Process

At the start of the process both parties will need to take actions that help establish the relationship, outline the steps that will need to be taken throughout the process and protect their interests:

  • The seller will need to carry out an examination of the buyer’s business and security requirements both for purposes of risk assessment and preparation of assignment instructions.
  • The seller will also need to review the detail of information about the employees of the outgoing provider.
  • The buyer will often insist that the seller enter into commitments of confidentiality by a confidentiality letter or a non-disclosure agreement (NDA) which are perfectly enforceable in law provided that they are well drawn up.
  • I also recommend the parties enter into a letter of intent (LOI), or heads of terms, to set out in brief everyday language the key terms of the agreement which the buyer and the seller are in the course of negotiating.  
    • The LOI should contain a timetable setting out milestones to be achieved along the way to contract signature.
    •  LOIs should be expressed to be non-binding, allowing them to be safely used as a convenient vehicle for negotiating the key terms of the contract, before drafting of the contract itself begins.

The buyer may wish to proceed by invitation to tender, if so, then that process itself dictates that a timetable is used, and my experience tells me that the same discipline should be employed in all negotiations of security contracts. In the course of agreeing the timetable, the parties should pencil in one or two round table meetings within the process just in case they are necessary to resolve difficulties.  A meeting at the right time can save weeks of unproductive communications.

It is important for each party to appoint a team of people to work on the contract process.  These will include operations, finance, management, health and safety, human resources and legal.

Many of the issues which cause problems in bringing a contract to final signature are legal, typically involving the issues which will be discussed in the following articles.  The lawyers on each side should be permitted to talk to each other to resolve these legal issues.  In my experience it does not help for these issues to be negotiated by the commercial members of each team, who will tend to adopt a strong defence of their company’s position, but will not be qualified to find the work around which will be required to bring the contract to signature.

The first draft of the agreement can be provided by either the buyer or the seller.  If it is provided by the buyer, it may be an adaptation of a general purposes procurement agreement.  Alternatively the seller may provide his own contract.  In either case all too often the terms offered by one party to the other are one-sided in favour of that party, and in effect challenge the other party to pick up every single point and turn it round to a reasonable position.  There is no harm in that approach provided that both parties are aware of what is achievable in negotiation, and move to those acceptable positions without undue delay or acrimony.

The contractual process is vitally important. If it is project managed properly, using the process which I have described, which includes proper preparation in advance and knowledge of the issues likely to be negotiated, the contract negotiation can be achieved in accordance with a good timetable, on time and with an enhanced working relationship between buyer and seller.