Commercial imperative
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The cold, hard facts of commercial reality which pervade everything about your relationship with your client, and which your client’s lawyer is certain not to understand. If she does understand it, she will profess not to care about it, and will claim it is beside the point. It is not beside the point. It very much is the point.
Revenue
For each party enters into a contract with a commercial aspiration; that all going well, that contract will yield revenue. That is it; that is the sine qua non of entering into any commercial contract: you hope that, over time, that revenue will be large. If it is not, it is a dud contract.
Let us call the value of that revenue “X”. You can value ex for any accounting period you like; obviously, the longer the period of the larger the value of X. There are three interesting variations of X:
- Historical X: The first is “Historical X”; the amount of revenue you have already earned from this contract. It will give you a comfy feeling, it may remind you of that chalet in France that you bought with it, and it may help project your expected revenue for the future, but for all other purposes Historical X is meaningless. It is in the past.
- Current X: “Current X” is the value of current and booked revenue on existing transactions and those that will arise during the non-fault notice period[1] of the contract . Think about this as “unbilled work in progress”. This is revenue you can safely say you will earn, but have not yet. It is exciting — almost tangible — but, compared with Historical X and Future X, it will amount to bugger-all.
- Future X: “Future X” is the revenue you can expect throughout the future life of the relationship, assuming you both remain solvent and on good terms. As Criswell famously said, “we are all interested in the future, for that is where you and I are going to spend the rest of our lives.” This revenue is much less certain, and it is potentially huge. This is the golden prize. This is what you should be focused on in every moment when you perform the contract.
Now. Look at the prospects for each type of X. Historical X is in the bank. Current X is as good as being in the bank. But you are short an option on Future X. Why are you short an option? Because you are not entitled to Future X. You have to persuade your client to give it to you. You cannot stop it terminating your contract if it so wishes. You should apply every fibre of your being to giving it no earthly reason to do so. In a very real sense, your future prospects depend on the continued performance of your valuable contracts.[2]
Legal risk
At the start of your relationship, the value of the three types of X unknown. It is at this point that you had your counterparty will engage in that unedifying ritual known as contract negotiation. Here your respective lawyers will agonise four weeks on the potential import of the legal terms. “Does under really mean the same thing as pursuant to and in accordance with?” This kind of thing. Arguing about it is all very tedious but those of a certain disposition seem to enjoy it. We write about them a lot on this site.
References
- ↑ Being the earliest point at which your counterparty could freely terminate its obligations under the contract.
- ↑ Just what to do about stale contracts, and where the parties have fallen out of affection for each other, is a subject for another article, but in a nutshell, shut them down. They are the tail end of the 80 in your 80:20 rule.