Lawsuits are expensive, time-consuming, and can considerably hinder a small business. Detailed, well-drafted, and skillfully negotiated contracts are worth the effort; they protect small businesses and can prevent burdensome legal battles. Below are several tips for small business owners to keep in mind when reviewing contracts such as agreements with vendors for the purchase of materials or services.
It never hurts to ask. Attempt to negotiate contract terms instead of simply signing off on a vendor’s standard agreement. Even if you have little or no leverage, do not hesitate to ask for business or legal terms that mitigate your risk or provide a better deal for you. It is sometimes surprising how much you can improve your contract provisions by just asking. A request that seems brazen to you may not actually be a significant concession for the other party. Provide compelling reasons or an explanation to justify your requests in order to increase the chances of compromise. At the very least, your inquiry will lead to a discussion that may provide insight into the other party’s interests and ability to accommodate.
Read (rather than skim) the entire contract. Often, small business owners are time constrained and do not take the time to read and understand their agreements. It is much faster and easier to sign the dotted line and hope for the best. This approach can lead to unpleasant surprises in the future. You may not be signing up for what you expect, need, or can provide. You may be unwittingly agreeing to provisions that are too financially risky. Remember that you will be legally bound to every term in your contract whether you read and understood it prior to signing or not.
Take time to think about and address potential problems. A contract may appear straightforward and likely to be implemented without a glitch, but it takes one problematic agreement to derail a small business. Issues can be tackled more efficiently (and less litigiously) when the parties have considered them and negotiated resolutions beforehand. For example, what happens when one party fails to meets its obligations in a timely manner? The contract should specify i.) what “timely” means, and ii.) whether the innocent party receives a discount and/or has the right to terminate the contract, etc.
Define, define, define! Every word in a contract counts. The best contracts are the least ambiguous ones. Specify time periods, dates, payment logistics, the parties’ major and minor responsibilities, and define all subjective terms to the fullest extent possible. Even if the intent of a word or sentence appears obvious, add detail so there is no room for a different interpretation. Along these same lines, do not rely on prior conversations to give meaning to the contract. Every detail discussed and orally agreed upon between the parties should be in writing.
Be innovative. Negotiating does not always have to involve dollar amounts. What non-monetary benefits can the parties offer each other to gain better terms? This can include a side service, co-promotion or marketing, partnering on a small project, or the potential for more lucrative contracts in the future. Creativity often greases the wheels of contract negotiation.
- Sharon B. Alavi
Corporate Counsel, Network Solutions
DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal advice. Network Solutions recommends that you consult an attorney if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.
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