Your student team is the product, legal, and underwriting committee
Write the Banker’s Contract
Turn a confident productivity forecast into a fair, measurable agreement a banker could place in front of a small-business owner.
The intellectual work is not writing more clauses. It is deciding, in advance, what each side is promising—and what evidence will count when reality refuses to match the forecast.
Case file: Harbor & Pine Supply
A family-owned coastal building-supply company with two locations, 28 employees, seasonal demand, and $8.4 million in annual revenue.
Excess inventory ties up cash while common items still stock out during storm preparation and spring renovation peaks.
Average inventory is $2.2 million; estimated annual carrying cost is $484,000; write-downs and emergency freight add $146,000.
A custom forecasting, purchasing, and transfer system; barcode cleanup; employee workflow redesign; training; and twelve months of monitoring.
$360,000 in first-year benefit: lower carrying cost, fewer write-downs, and less emergency freight, without increasing stockouts.
No upfront fee. The bank funds $110,000 of work and receives 30% of audited attributable benefit for two years, capped at $240,000.
A hurricane, a new competitor, supplier price changes, or a third location could make the historical baseline misleading.
The owner fears loss of control, employees fear surveillance, and the purchasing manager’s tacit knowledge is not in the data.
Step 1: State the bargain
Write a one-paragraph business bargain before writing a legal provision. It should say what problem is being addressed, what the bank-side team will provide, what the owner must do, how benefit will be measured, how payment will be calculated, and who bears which failure.
If the bargain cannot be explained without defined terms, the drafting team does not understand it yet. The owner should be able to distinguish three things: a forecast, an obligation, and a guarantee.
Step 2: Draft the thirteen provisions
Open each provision below. The drafting prompt names the judgment your team must make. Do not copy the example language without resolving the facts.
1. Baseline
Identify the source systems, historical period, accounting treatment, anomalies, and signer who validates the present condition. Separate average inventory, carrying-rate assumptions, write-downs, emergency freight, and stockout measures.
2. Intervention
Describe the system, data cleanup, workflow changes, training, monitoring, integration, acceptance testing, and responsible party. Define completion and the date of full implementation.
3. Contracted benefit
State the proposed benefit by category and period. Decide whether the $360,000 is a forecast, minimum guarantee, target, or cap on the output ledger. Avoid turning an estimate into an accidental warranty.
4. Measurement period
Define when measurement begins, how implementation delay is handled, whether the first period is twelve full months, and how the second-year participation period works.
5. Attribution and adjustments
Choose the counterfactual: normalized historical baseline, forecast, matched location, or another method. Specify adjustments for sales volume, price inflation, supplier terms, new locations, major disruptions, hurricanes, acquisitions, and product mix.
6. Guardrails
Define service, stockout, safety, quality, cybersecurity, privacy, employee-impact, and business-continuity thresholds. Explain what happens if savings occur while a guardrail fails.
7. Bank obligations
Cover funding, personnel, software delivery, security controls, training, support levels, correction of defects, reporting, insurance, regulatory compliance, and record retention.
8. Client covenants
Define timely data access, designated personnel, required implementation, employee participation, accurate records, continued use, notice of material changes, and reasonable mitigation.
9. Risk allocation
Allocate intervention failure, model error, poor data, cybersecurity events, third-party systems, force majeure, regulatory change, owner nonperformance, and consequential loss. Include appropriate liability limits and exceptions for misconduct.
10. Audit and records
Name the calculation schedule, supporting records, access rights, review deadlines, confidentiality rules, retention period, and threshold for an independent auditor. Define who pays for verification.
11. Payment
Specify the 30% participation, two-year term, $240,000 cap, invoice timing, audit holdback, taxes, setoff, late payment, and treatment of negative or delayed benefits. Consider a minimum owner-retained benefit before participation begins.
12. Disputes and remedies
Create an escalation path: operating teams, executives, independent accounting determination for measurement disputes, mediation, and then the selected forum. Distinguish a formula dispute from breach, fraud, or system harm.
13. Consent, data, and exit
Define permitted data use, minimization, AI training restrictions, employee notice, subcontractors, return or deletion, system portability, transition support, termination rights, and the effect of termination on earned participation.
Step 3: Build the benefits exhibit
The Contracted Benefits Statement should fit on one page. It is the bridge between the operating proposal, the payment formula, and the project’s internal productivity ledger. Include baseline tables, target conditions, formulas, data sources, measurement dates, attribution method, adjustments, guardrails, client obligations, and signature lines.
Then write two numbers in separate boxes: Contracted Benefit Output at signing and Audited Attributable Benefit after the measurement period. Never let the first masquerade as the second.
Submission package
- Five-page plain-language Productivity Participation Agreement.
- One-page Contracted Benefits Statement.
- One-page risk memo identifying the three terms most likely to produce unfairness or litigation.
- A 90-second explanation delivered as if the small-business owner asked, “What exactly am I promising?”
Step 4: Red-team the contract
Half the class represents the owner. Try to make the bank earn payment for a benefit it did not create, shift its own system failure to the client, claim a forecast as a guarantee, or retain excessive data. The other half represents the bank. Try to find ways the owner could avoid payment after receiving the benefit, withhold implementation, distort records, or attribute success elsewhere.
Revise the agreement only after both sides can describe the other side’s strongest objection. A durable performance contract is not the most aggressive version. It is the one that can survive a disappointing year without requiring either party to rewrite history.
Reconstructable baseline and formula
Balanced control and risk
Clear duties and timelines
Owner can explain the bargain
The deepest lesson is that AI does not make contracting less important. It makes the contract the place where scalable intelligence meets accountable economic reality. The machine can propose the system. The institution must decide what it is willing to promise.
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