Why I Love Contracts (and You Can Too!)
Updated: Dec 20, 2019
Contracts are the bane of many businesses' existence. Bad contract experiences often fall into one of a few categories.
The Handshake Deal: They get into a deal or arrangement without a written contract, the deal goes sideways, and then they call me to try to find an exit path. Those conversations are frustrating for the client, as they realize that their "agreement" is only as good as the other party's willingness to commit to it. In a surprising number of cases, the other party isn't being malicious--they genuinely have a different understanding or recollection of the deal. If things go well, you're able to sort out the misunderstanding but still suffer delay and extra expense. If things go poorly, you end up spending a lot of money on litigation, and you irreparably harm a business relationship. Either way, the business incurs delay and cost that was avoidable by having a good contract in place from the outset.
The Boiler(plate) Explosion: What can be worse than a deal with no contract? A deal with a bad contract. The business makes a deal and gets a massive, 30 page "standard" agreement from the other side. The business assumes that everything is "standard" and signs off. A year later, when they're expecting that their monthly payments are done, they get hit with continuing invoices, because unbeknownst to the business, that massive agreement had an "auto-renewal" or "evergreen" clause in it...and the business is now on the hook for another year of expenses.
The Contract that Isn't: There are a shocking number of "contracts" out there that lack the most basic terms. Businesses focus on including all sorts of language that they think is necessary--indemnification, insurance, FOB/FAS, and a myriad of terms...and they forget to include what they're contracting. You can read the contract over and over again, and you can't find where it says what you're getting and how much you're paying for it. These businesses think that because they have a nice, neatly written and signed document, they have an agreement. Yet when they get into performing, they find that their document lacks the simple language it needs to explain who is getting what, when, and for how much.
The benefit of a good attorney is that they will help you sort through the piles of language that get heaped into modern contracts, and sort out what you do and don't need. There are times when auto-renewal might be great--and times when it is terrible. There are times when you need good language on risk of loss--and times when that really isn't a concern. But perhaps most importantly, a good attorney looks at the agreement from a neutral perspective. The business is often too close to the deal, and they know so much about the deal that they read language and details into a contract that aren't written down. My job is to help you ensure that your contracts say what you need them to say to have a great outcome on your project.
It often makes sense to clients to work with an attorney when they're drafting an agreement. They think, "I should have someone help me write this." However, clients often fail to call an attorney to review an agreement they're entering into. Here's what you may not consciously realize: the agreement that you're entering into was likely written by someone else's attorney. That other attorney wasn't concerned about your well-being or your good outcome...she was only concerned about her client. Even at that, she may not have done a good job explaining what is supposed to happen by the terms of your "deal". Having a good, practical legal review of your contracts, whether drafting them or receiving them, is critical to good business outcomes.
But I don't need a contract; I am just in the simple business of...
You still need a contract. You're in the simple business of selling candles that you make from home--that seems pretty low risk, right? You still likely want some language in your corner. What's your return policy? What's your warranty? Are you inadvertently guaranteeing that the candles are suitable for a specific purpose? If your candle causes a fire in Alaska, can you be sued in Juneau? When you buy a candle from a big candle company, they have terms and conditions that accompany the sale--because they've learned the lessons of not having those terms. You should to...because frankly, your home-based business likely puts you at greater risk, as compared to the risk that the CEO of the big candle company has.
But this contract is with a massive company, and there is no way that they'll think about changing their terms to deal with me...so it's not worth it to have a legal review of this agreement.
There are two good responses to this notion.
First, there are a shocking number of times when massive companies change their terms to finalize even a small deal. Sometimes, we find issues not in the boilerplate, but in the specific terms applicable to this deal (the "what / when / how much"). Sometimes, we find issues in the boilerplate itself, and work through them. Yes, I've negotiated terms with Microsoft, Amazon, CDW, Ford Motor Company, General Electric and a host of other massive companies--and my clients have benefited from those revisions. Remember--that massive company on the other side of the deal has an attorney (or maybe 1,000 attorneys) who are doing the same thing you should be: ensuring that the contract is right for the circumstances.
Second, let's assume that the mega-corporation on the other side of the deal is fixed in its position and won't change any language. If we review that contract and find some critical flaw in it that exposes your business to significant risk...or if the contract doesn't accurately describe the deal that you thought you were getting...are you still going to sign it? There are times when my clients have me review an agreement, get to a point where they truly understand its terms, and then decide that their best course of action is to not sign. Your decision to contract or not requires you to be informed about what you're agreeing to. Have you ever signed an agreement without reading all of it? Do you know what you're obligated to do? Sometimes, an informed client understands that it's better to walk away from the deal. A bad deal is often worse than no deal at all.
The best outcomes for my clients come not from experiencing my courtroom proficiency, but rather from having a written agreement, up front, that keeps the client out of court. Both sides of a transaction benefit from a good, clear agreement. The best part of my practice is seeing my clients succeed, enabled by relationships built upon a solid, contractual understanding.
Yes, developing a good contract up-front can have some cost. However, that cost will pay you back handsomely when you avoid (or minimize) litigation and produce better, longer-term relationships.
How do you know when to have a contract reviewed? There are good thresholds for evaluating that question and the related risk. Give me a call and we can discuss. 630/292-4023 or email@example.com