4Basics Contract Deal

Author:
George Vrakas CMILT

What are the absolute basics towards a steady foundation for a written deal?

Imagine that you have been working on a deal for weeks and during a meeting with the supplier (or customer) you reach a breakthrough agreement. Both parties are quite excited and shake hands. Is this enough?
Certain cultures consider this to be enough.

Irrespective of the integrity (character) of both parties though, it is always best to write things down as a Letter of Intent (LOI) or a Memorandum of Understanding (MOU) or Agreement (MOA).

But what do you actually need to take down as a minimum to make this deal valid, workable and to later avoid disputes.

Read on if you want to find out the 4 elements that are widely acknowledged as the absolute basics to a deal.

The 3 Ps
A deal is considered to be valid if it refers to three basic elements commonly known as the 3 Ps. These are:
•    Parties
•    Price
•    Product

It is quite obvious that if we do not have the parties that are covered, the price agreed (and what is included and excluded in the rates) and the product (a exact description of what the product/service is and any agreed variations), then, really, there is no deal. As without these elements there is inadequate clarity to any deal.

3Ps augmented - (the IRON TRIANGLE contribution)
I don't believe that the above are enough though in the current environment as I have elaborated here based the concept of the Iron Triangle.

This concept reflects the importance of the balance between i) the Scope-Product, ii) the Price and iii) the @Performance-Quality-KPI expectations when agreeing a deal.

What the Iron Triangle concept contends is that if these three elements are not in balance the deal is in high risk of failing.

As you can see, the Iron Triangle concept adds to the 3P concept one more element. The element of Performance-Quality-KPI as a absolute basic to any deal.

SUMMARY - the new model = The 4 Ps
So, in summary, combining the two models, the absolute basics to any deal are as follows:
1. Take down the deal in a written agreement (LOI, MOU,MOA etc)
2. Include the below in the written agreement:
•    Parties
•    Price
•    Product
•    Performance (Quality - KPIs)

What are the elements you use as the absolute basics in a written deal?

George Vrakas (MBA, CMILT) is highly reputed in the fields of Services Procurement and Logistics with over 19 years experience in Procurement and Supply Chain. George is passionate about Procurement, Innovation, Continuous Improvement, exploring trends that will shape the Future, Team Development and the Modernisation and Automation of processes. George is currently serving as a Board member of CILT Australia VIC and is also a member of CIPSA and IACCM. George is the author of http://www.george-vrakas.com blog and has presented on Globalisation, Procurement and Continuous Improvement at various venues and universities in Victoria, Australia.

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