Advantages of Long Term Contracts
The process should begin in the proposal phase of a project and then be presented to the larger players involved, such as investors.3 min read
There are many advantages of long term contracts, including:
- Mastering of strategies and routines - Training periods tend to be slower, resulting in a decrease in profit and/or productivity. Long-term contracts reduce the number of new staff who have yet to be effectively trained.
- Better return of investment on equipment - Startup costs can be hefty. The longer the contract, the more value a company will get from the initial start-up fees.
- Dedicated account support - The more time a person and/or team has with a particular program, the more familiar they become. With more familiarity comes more potential for improvement in the long-run.
- Stronger partnerships - Relationships take time to build. The longer a contract is in place, the more time people have to establish bonds. With these bonds comes a greater understanding of what is needed, as well as higher levels of dedication from those involved.
- Increased security - In certain cases, the more familiar people are with one another, the easier it becomes to spot outside threats, such as who has permission to access which areas.
Deciding on a long-term contract is not always an easy choice. The process should begin in the proposal phase of a project and then be presented to the larger players involved, such as investors. These presentations should clearly highlight the above benefits of entering into a long-term contract, focusing on overall cost savings.
Advantages of Long-term Agreement (LTA) With a Supplier for Procurement of Goods
- Budget - A LTA allows for prices to be locked in, so the buyer is able to manage their expenses more securely.
- No rising prices - A LTA establishes a firm buying price, preventing surprise increases.
- Security - Both the buyer and the seller have peace of mind, knowing the agreement will last.
- Elimination of renewal fees - Each time an agreement is renewed, both parties have to pay for re-negotiation, re-tendering, and sourcing, which adds up over time.
- Relief of burdens - With a LTA, there are less administrative requirements, as the contracts are not constantly up for renewal.
- Mutual interests - Both the buyer and the seller gain something from the LTA, as both are able to feel secure in the commitment.
- Relationship building - As both parties are involved for an extended period of time, there is more room to build trust, allowing for stronger partnerships.
- Time - There is more time to become familiar with each party's processes, thereby increasing overall efficiency.
- Consolidation - Both the buyer and the seller are able to find new ways to work together.
- Storage fees - The buyer will save money on things like storage and handling fees.
Advantages and Disadvantages to Fixed-Term Contracts
Probationary periods are common in many jobs, allowing the employer to determine if the employee is a good fit for the demands of the position. An ideal format for this probationary period is a fixed-term contract. After the period is over, the employer can renew the contract as they see fit. Similarly, many businesses have temporary job openings, such as leave coverage and/or assistance with specific projects; fixed-term contracts provide an effective alternative to hiring permanent employees.
On the opposite side, fixed-term contracts have some disadvantages:
- Finding a qualified candidate could be difficult, as more experienced individuals may not be willing to take on temporary employment.
- If there is an issue in the wording of the contract, it could lead to the involvement of an Employment Tribunal, causing more work for management.
- If part-way through the term, it is discovered that the employee isn't right for the job, the employer will need to find a way out of the contract. This is not always easy and typically results in paying out the contract.
- Lengthy legals battles may ensue if the temporary employee feels they are treated differently than the permanent employees. It is important to note that regardless of an employee's type of contract, The Employment Equality Act still applies.
- Monitoring timelines is extremely important in fixed-term contracts, as the contract could roll over if an end date is overlooked, often resulting in problems with permanent employees returning to previously held positions.
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