DISCLAIMER: This post provides a general overview of contract law. It is not legal advice, and I am not your attorney. If you require information or advice applied to your unique situation, please make an appointment to discuss it with an experienced attorney of your choosing.
From software user agreements to gym membership contracts, you are continuously called to memorialize your rights and responsibilities in relationships. Often, you are presented with lengthy documents that you must sign to get the benefits you negotiated for the price you agreed to pay. Those documents frequently contain provisions and language you don’t understand. Under pressure, you sign that you understand and agree to the terms. You hope for the best, and that usually works out. Yet you know you will be more likely to get good results when you take the time to understand what you sign and push back against terms that are unfavorable to you. That understanding begins with:
- Why businesses use standard contracts
- How to draft an effective contract template
- What you can learn from others’ standard contracts
Why Businesses Use Standard Contracts
It’s simply not practical to negotiate every term of every agreement. Many contracts also contain restatements of applicable law, which means they aren’t negotiable. Attorneys include these restatements for a variety of reasons, including to:
- Exhaust or confuse the non-drafting party. Some attorneys know parties are anxious to sign agreements and get to work. They will take advantage of this for what they perceive to be in the best interests of their clients. However, they might fail to consider the impact one-sided agreements have on relationships their clients want to keep and nurture.
- Inform all parties on important aspects of their relationships. We find well-written and transparent agreements are less likely to be breached or challenged in court. The contract should memorialize the agreements made during negotiations, not introduce a lot of new provisions intended to control the party or parties in the weaker position(s).
- Deter the non-drafting party from exercising legal rights. Courts have not been upholding some restrictive covenants, yet transactional attorneys have felt pressure to keep them in their client contracts. They will often state that the agreements do not preclude parties from pursuing their lawful rights, but they are hoping those parties won’t know or exercise their rights.
When considering which type of contracts you will use in your business, it is usually best to consider how you want your clients and subcontractors to view you. Are you a collaborator who respects the power and contributions of others, or is your intent to control them? Do you want to be seen as confident and trusting or fearful and inflexible? Are these consistent with your brand and who you say you are? If not, your clients will notice. They won’t trust you, and they will move on as soon as they find someone more willing to collaborate.
How to Draft an Effective Contract Template
Remember, the contract is simply a written memorialization of the terms agreed to during the negotiations. It is meant to provide all parties a reference when changes or unexpected events occur, not to weaponize one party against the other. Your template should guide the parties through the negotiations so you reach a mutually beneficial agreement.
An effective contract is:
- Clear. All parties should be able to understand the agreement without having to hire lawyers to interpret it. Attorneys might be necessary to explain other aspects of the relationship, but the language should be common and concise.
- Fair. Your contract should allow all parties to succeed in the relationship. It should not be overly burdensome or one-sided. That is a recipe for conflict.
- Flexible. Be prepared to negotiate the terms of your contracts, even if you have a standard template to guide the negotiations. This shows that you are willing to find solutions that meet the needs of everyone involved, not just your own.
What You Can Learn from Others’ Standard Contracts
Clients frequently ask me to review contracts before they sign them. The standard ones almost always contain provisions that don’t apply to the relationship they are entering. The party that drafted the document is usually a large organization that enters a lot of contractual relationships and is trying to simplify the internal process, but it creates a lot of unnecessary confusion. This is not always a concern, especially with simple, short-term projects. However, the longer the relationship, the more you should be looking at what those contracts are communicating:
- Values. Long-term relationships create opportunities for greater scrutiny, so make sure you will be okay if the relationship becomes public knowledge. Or make sure there is a confidentiality and non-disclosure provision. You might also consider whether the agreement heavily favors the contract drafter, how breaches are defined, what to do about unethical behavior, and commitments to diversity, equity, and inclusion.
- Brand and Style. Contracts can communicate preferred communication styles, expected deliverables, deadlines, fee structures, and performance standards. Make sure these are compatible with your image and work processes. Otherwise, you might find the relationship a source of frequent frustrations.
- Commitments. Written agreements might include satisfaction guarantees, late charges, and other conditions that suggest the standards you must meet for the project to be successful. Set yourself up for success. For example, if you know you overpromise and fail to deliver results on time, don’t commit to the late charges, unless you are trying to improve and believe this will help you.
Always negotiate different terms when your needs, wants, and expectations aren’d adequately considered. Also be willing to walk away if terms are incompatible and non-negotiable.
Additional Tips When Contracting
- Get feedback from colleagues and mentors. Once you have a solid draft of your contract, ask others to review it and provide feedback. People who do not work in your field can be great resources. If they can’t understand the terms, you might not understand them as well as you think, and their questions can help you pinpoint the areas that need improvement.
- Keep your contracts up-to-date. The law is constantly changing, so it is important to have your attorney review your contracts regularly and make any necessary updates.
- Include a multi-tiered dispute resolution clause. Our contracts include a three-tiered approach that begins with negotiation, moves to mediation, and ends with arbitration if necessary. Some disputes belong in court, but it’s the rare dispute between attorney and client that needs judicial intervention. We find that most people want a quicker, less expensive option that allows them to work through the emotional aspects like trust, too.
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