Friday Rant: Simplifying Policy to Enable Diverse Business Contracts Pays Off

Our new Spend Matters consulting arm (more on this in the New Year) had a very telling encounter this past week with a large company that started the process to hire our firm to do a small, expert engagement around a particular type of procurement technology system deployment. It was a situation where both sides knew that we were among the most capable and affordable knowledge sources to deliver the goods (or insight, in this case). Certainly in this situation, being a small business, and one that refuses to register for women or disadvantaged ownership status on principle (though we would qualify for both), gave us the nimble advantage that having a small overall mass and core nucleus can provide. Yet when it comes to a small business contracting with bigger companies, sometimes winning a contract is the easy part -- and the contract process is far more time consuming and costly.

Here at Azul Partners (Spend Matters' parent company) and our newer services arm, Spend Matters Group, LLC, I've learned first hand over the years that working with Fortune 500 companies can be extremely onerous when it comes time to implement a negotiated agreement and conform to the terms of a master services agreement (MSA). In fact, it can take days of back and forth negotiation over indemnification clauses, ownership of IP, insurance requirements and the like. Even negotiation a simple NDA or transaction NDA prior to a contract can take hours. For a small business, this type of stuff is a time killer.

In this particular case, I told the client (a close colleague) that we would be happy to do the work with a simple agreement based on what amounted to both a low cost and low margin deal for us if we could simplify the contracting process. Otherwise, given the low price tag for the project, we couldn't justify the effort unless the project was substantially larger. Their paper would be fine, but it would have to be simple. The result was a push through of a simple PO with our firm agreeing to nothing overly egregious or having to negotiate indemnification or ownership of IP clauses for hours on end. Contracting was a cinch, all things considered. And in the end, our client will be able to tap a highly specialized knowledge base on far more flexible terms than a larger firm would likely have been able to deliver.

The story will undoubtedly have a happy ending in this case for both client and service provider. But all too often, small and diverse businesses simply give up when it comes to working with large companies. Not because they don't want to serve them -- or because they can't get a foot in the door thanks to diversity policies -- but because the contracting process is just too costly and complicated. As organizations look to make new resolutions for 2012, let me volunteer a critical one for supplier diversity functions: Focus not just on absolute numbers gained from pushing diversity spend to the tier two level, but embrace the best possible set of smaller first tier suppliers by tempering the reach of the contracting gestapo from legal and other areas of the business. After all, a simple well-defined scope of work agreement between familiar colleagues can fully sub vent the supposed risk of foregoing a raft caveats -- and can save a bundle in the bargain while driving social and societal outcomes at the same time.

Jason Busch

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