Did You Do Your Homework? – Reviewing and Understanding Your Prospective Business Partners
Historical behaviour of your proposed business partner can be a warning that your future focus will be distracted. Perhaps one of the most surprisingly frequent mistake made by buyers of IT and BPO services is failing to adequately investigate the company with whom they intend to enter a contractual relationship. While both supplier and client will be very focused on whether the proposed deal is financially beneficial, a surprising number fail to adequately study and understand their potential business partners.
Research into proposed business partners can provide early warning indicators about the likelihood that contractual obligations will be met and if disputes arise, whether litigation is likely. Assessment of this type of information is important as delivery and the effective conduct of any problems or disputes are essential to successful long term partnerships. This is of particular importance where the subject matter of the contract is complex or difficult since this will increase the likelihood that problems will arise. Pre-contract investigation usually includes a financial assessment to determine the financial viability of a proposed partner, but rarely does a litigation search take place.
A litigation search may indicate how litigious the proposed business partner is, the nature and types of its past legal disputes and the likelihood of litigation if problems arise. A litigation search should do more than merely identify the number of disputes involving a potential business partner. It should focus on the nature and type of conduct that led to the litigation as well as the nature and reasonableness of the positions taken in the litigation. If your proposed partner has been difficult and unreasonable in the past, it may be a good indication of future conduct as most commercial litigation involves one or more parties who are frequent litigants.
So you need to carefully consider before you make your final decision to proceed with a contract: is the partner someone you are prepared to do business with? Do you have alternatives? Have you taken both contractual provisions and planned your necessary delivery activities so that you are protected from the worst excesses of a dispute? Importantly, can you/how do you quantify to the Board and factor in the “cost”, and risk, of doing business with them in the competitive procurement position so that you truly evaluate the full “costs” of the deal.