As a seasoned business attorney, I can tell you that a significant number of contract disputes can be prevented with strategic pre-planning during negotiations and drafting of the document. Regardless of the size of your business or your level of expertise, it is common for the same underlying issues to lead to litigation over contracts.
Make sure the contract reflects the Deal
When parties are entering into a contract, they typically want to get the transaction completed ASAP so they can get started on the new venture. Frequently, one party gives the other its “form contract” without ensuring that the deal points agreed upon have been included in the document. The perception is that contract bears little relationship to reality and is only useful if the parties go to court. However, this thinking is exactly what gets people into trouble. Form contracts are useful tools and outline your company’s position. But, they must always be modified to include the deal points and agreements. If those deal points are not included, they will be considered outside of the scope of the agreement and not binding obligations.
Be clear about performance
The contract should be specific about deadlines that must be met and the performance requirements. Not only does setting forth the time-for-performance protect you by helping ensure you obtain the product or services in a timely manner, it may also provide you the ability to get out of the contract if the deadlines are not being met. Thus, use exact dates and avoid any general or vague time periods.
Establish expected level of quality
Your written agreement should set forth the level of quality that is expected, the criteria for meeting that quality level, and who will determine if it has been met or not. The contract should outline what will happen if the expected level of quality is not met and who bears the burden of rectifying the problem (within a certain period of time).
It’s always important to include an escape clause in the contract. If one of the parties can no longer continue to perform under the contract or the product, equipment, services or subject matter is no longer needed, an escape clause can provide a way to mitigate the damages and avoid disputes and litigation. For example, if a party needs to get out of the contract, it can pay a certain amount of money for work in process, materials on order, and the like as a type of agreed upon consequence.
In sum, don’t rush into a contract even though your internal customer will often push you to do so. Prepare a document that reflects the deal points. Draft a strong agreement that is clear on the specifics and deals with potential issues that may arise. This can save you a significant amount of time and money, as well as preserve the relationship with the other party.
If you need assistance negotiating and drafting a contract or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.