How Types of Customer Contracts effect Business Value

The types of contracts you have with your customers and the terms in those contracts will affect your business value.  This is particularly true of construction contractors, engineers, and subcontractors who often have long term projects.  The highest value goes to a long term, non-cancelable, highly profitable contract (this elusive contract is almost mythical I might add).  Clearly they exist but they can be fairly rare.  Below is the list of contract types.  The higher on the list, in general the more value created.

  • ·         Long term fixed price contracts (with profits)
  • ·         Long term T & M contracts
  • ·         Short term fixed price or T & M contracts with repeat customers
  • ·         New customers on negotiated jobs
  • ·         Repeat customers on competitively bid jobs
  • ·         New customers on competitively bid jobs


In general “repeat contract service work” has the highest value.  The lowest value is one time bid work for new clients.   

Who you work for impacts value too.  A contractor doing negotiated work for defense contractors and medical companies is going to be perceived as more stable than one building speculative office buildings.

What does your mix look like?  How can you improve your mix to get Your highest possible business value?

Gregory R. Caruso, Atty, CPA, CVA
Harvest Business Advisors
www.harvestbusiness.com
gcaruso@harvestbusiness.com