An exciting moment for any entrepreneur is reaching an agreement with regard to providing deliverables or services to a customer or receiving same from a vendor. You have had discussions with your counterpart and exchanged a few emails to reach an “agreement”. You are confident that you have negotiated a good deal and your counterpart assures you that if it does not work out, no worries. But how best to get the deal you think you have negotiated? Here are a few helpful pointers from the real world of contracting.
Always GET IT IN WRITING!
If the terms you think you agreed to are not in writing, in the event of a dispute, you (probably) lose.
- Are all material terms in the written contract? Leave them out at your own peril.
- Who drafts? Party drafting the document will have more control over the content of the contract.
- Who signs? Must have authority to bind the party.
- Where is the fully executed document? Easy to save appropriately, but if lost adds another hurdle to enforcing the contract. If never signed, then a bigger problem.
“It must be enforceable, I found the contract on the Internet.”
- Avoid “recycling” documents.
- Facts and circumstances change.
- Laws and regulations change.
“It’s our standard form contract, we never revise it.”
- Most “form” contracts are revised all the time.
- Terms and conditions can be negotiated.
- Side documents can memorialize a revision without harming the sacred “form”.
- Need to consider relative negotiating leverage. Big v. small business. Legal counsel can help your small business level the playing field.
“How does my company get out of this?”
- Is there a termination clause? Easy to include in contract. Without it, your company’s options are limited and expensive.
- Is there an end date? Simple and helpful provision often overlooked.
- What are the deliverables and have they been provided or performed and have they been accepted? Dispute likely if specs and acceptance procedure are unclear.
- Who has breached first? May be a last ditch way for you to get out if other party has breached the contract first
“Why is my small business providing a line of credit to a Fortune 500 company?”
- Because you agreed to it.
- If you are a subcontractor, do not agree to payment after the prime contractor gets paid by its customer.
“The Customer never pays on time.”
- Probably no late payment penalty in the contract…so why pay on time.
- Know your customer.
- Actually manage each customer account.
- Be proactive at first slow payment.
Consult with an attorney… BEFORE YOU SIGN.
- Helps you get the deal you think you are getting.
- Helps avoid problems and expenses down the road.
- Helps level the playing field with the other party.
- Difficult to “un-ring the bell” once you sign.
- Talking to an attorney at a dinner party doesn’t count unless its your attorney.