Contracts form the bedrock of any lasting business relationship. They define the roles, responsibilities and obligations of the parties, and document the deal that has been done. However, many businesses fail to take an adequate interest in how they are drafted, preferring to rely on their “relationship” with the other party to resolve difficulties or disputes.
The temptation is to treat the contract as a necessary evil that keeps pesky lawyers in business, and which can be consigned to a dusty filing cabinet at the earliest opportunity. Unfortunately, when the business environment gets difficult, companies will scour the very same contracts they ignored to try and exercise their rights or enforce the other party’s obligations. As such, it is crucial to get the document right, regardless of how cosy a business relationship may seem when the contract is negotiated.
A good contract should paper every aspect of the deal. Think everything through to its logical conclusion to ensure that all likely eventualities, areas and practical issues are covered. For example, when describing payment, consider how quickly and how often it should happen, where the money goes to, what form it should take (cash, cheque, electronic transfer) what currency should apply, and what happens if payment is not made on time.
Lawyers take an almost perverse pleasure in using tried and tested archaic wording, or unnecessary verbiage, that results in convoluted clauses that are hard to read and even harder to follow. Language should be clear, unambiguous, sharp and concise, otherwise it may end up affecting the interpretation, or even the validity of a clause. Ensure that anyone who may read the contract in future can easily understand it – whether that’s a work colleague or a judge.
Contracts often go through multiple iterations during negotiations before they are finally settled. To avoid unwanted interpretation issues, ensure that cross-referenced clauses and schedules still point to the right places, definitions are appropriately used, every “I” and “T” is crossed, and that punctuation is correctly applied. In addition, ensure that drafting is relevant to the relationship. Form contracts often contain inappropriate or inapplicable clauses that can confuse matters.
Don’t make assumptions – ensure that whatever you need to have in the contract is included somewhere. Failure to review so-called standard “boilerplate” terms, and failure to include fundamental clauses such as choice of governing law, what happens in the event of dispute, and how and when the contract starts and terminates are common mistakes that can cause significant issues further down the line.
Don’t be pressured into signing a contract until ready to do so. Consider each and every term of the contract as negotiable, even if you are told otherwise. A common excuse given for refusal to negotiate is that the clause represents “company policy”. Ensure that perception is challenged and the other party can adequately explain what the policy is and why it applies to the current contract. Know what your “walk-away” position is and stick to it. Keep the contractual risks in mind when negotiating price – divorcing the two is a recipe for disaster.
Above all, if you feel overwhelmed and under-resourced, or you don’t understand the terminology or legal impact of the clauses you are reading, ensure that you seek professional legal advice before signature. The English courts are generally loathe to rework or strike out a bargain between two organisations of similar size and resource, so it’s imperative to understand what you are signing up to.