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May 11th, 2010
“Well, you seem to have read every word of this contract” said the other party’s lawyer. Of course I had – that’s what I was being paid for! That said, I was well aware that my client’s bargaining power was very weak and that my mumerous objections to their ling-winded, very one-sided contract may well be rejected.
So, how do you proceed in such a situation? How do you negotiate a contract (or someone else’s terms and conditions) without power?
Well, in this particular case, we agreed to meet the other party and their lawyer for a round-table discussion. I then began by explaining that I was a collaborative negotiator – I was not ‘playing games’, I simply wanted to achieve a contract which was fair and reasonable and reflected what BOTH parties actually intended. After this, we went though all the proposed changes one by one, and the other party’s lawyer had to agree that they were, indeed, reasonable.
We didn’t get ALL the changes we asked for, but in most cases the other party’s original contractual position could not be defended. Accordingly, the changes were agreed and we achieved the ideal solution - a win:win situation leading to long-term trust and a reduced likelihood of disputes.
Unfortunately, this happily ever after scenario doesn’t always happen. Sometimes, the other party adopts a ‘take it or leave it’ approach. So what do you do then?
The first question always has to be ‘Do you NEED to deal with these people?’ and if you don’t the second question is ‘Do you really want to work with a Bully?’ If you have adopted a collaborative approach, have honestly tried to look for a solution which protects both parties’ interests and this approach has been rejected, does that bode well for your future working relationship? I fear not.
The only issue here is that it is not always the other party that is causing the problem. So, to all those who love drafting unnecessarily complex, ‘one-upmanship’ contracts, I would say ‘Give reasonableness a try – because if your clients are looking to secure a long-term relationship with the other party, they won’t be too happy if that party walks away because you made them look like a Bully!’
If you have enjoyed this article, you may also be interested to read:
Short-Term Solution or Long-Term Relationship? and Word Association
Tags: client relationships, contract, disputes, reasonableness, terms and conditions, trust
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April 23rd, 2010
I just had to bring you the following, which is a blog detailing an April Fool’s prank which proved that people were not reading the terms and conditions they were signing up to:
http://bit.ly/bsPpDn
Clearly, no harm has been done on this particular occasion, but what does this experiment tell us?
- Are we too trusting of people?
- Are we too busy to read what we are committing too?
- Are we so desperate to get these products that we will sign ANYTHING?
- Do we believe that clicking in the ‘Accept’ box is less binding than actually signing (it’s not!)?
- OR – do we simply know that if we do read it, it will all be gobbledegook anyway?
Of course, if nobody ever reads on-line terms and conditions for IT products, then this could have been proved by replacing the existing wording with what they (generally) really mean- ie ‘You have no rights, and we have no liability!’
Check out my earlier article: Do Terms and Conditions Really Matter if No-one Ever Reads Them? for a more serious discussion of this topic.
Tags: contract, terms and conditions
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April 19th, 2010
Not long ago, I attended a course on a specialist area of commercial law that I was keen to extend my knowledge in. The tutor was well respected in his field and I looked forward to the session. However, what I ‘learned’ horrified me.
Throughout his talk, the tutor explained – with relish – how various clauses could be ‘slipped in’ to contracts in the certainty that the other party would not understand them. He went on to explain how these clauses could then be used to ‘squeeze the other party out’ of the arrangements over a period of time. He also explained how certain pricing mechanisms could be used to extract much more for his clients than both parties originally intended – something which would not become apparent to the other party for some considerable time.
My question – and one which I was too dumbstruck to ask at the time – is “Does this lawyer really think that he is doing his clients any favours with these ‘clever’ clauses?”
The answer, I suppose, depends upon your point of view.
Contracts are often called Agreements – and for good reason. The whole basis of a contract is that it represents the agreement which has been reached between the parties, and good contracts can lead to profitable long-term relationships as many of our long-term clients know. However, if you were the ‘victim’ of one of this chap’s contracts, would you want to do business with his client again? I doubt it.
In reality, (leaving aside the minority of clients who are greedily looking for short-term gain over long-term relationships,) I think it probable that most of the clients don’t actually understand the complexities of these ‘clever’ clauses, and actually operate their relationships under their own unwritten rules – which makes the whole exercise a waste of vast sums of time and money, and could lead to various problems if a dispute ever does arise.
So, if you want to ‘get one over’ on the other party in your negotiations, we won’t be best placed to help. On the other hand, we find that our clients want us to approach things differently - to concisely and accurately record the details of the agreement which they have reached, and to start from a position of trust and reasonableness.
Two different approaches with two different outcomes. Are you looking for a short-term solution or a long-term relationship?
If you have any thoughts on the above, please either leave a comment or get in touch. You might also want to check out our earlier blog post ‘Word Association’, which is all about combative v collaborative agreements .
Tags: client relationships, contract, disputes, reasonableness, trust
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February 16th, 2010
This is a question which anyone who advises on contracts or terms and conditions is frequently asked. It seems quite reasonable at first – but then, what does ‘OK’ mean?
There are several things which may stand out as being ‘not OK’ or unacceptable in a contract – unreasonable liability provisions, restrictive covenants etc – but these can sometimes pale into (almost) insignificance, if we ask a different and wholly more important question: “Does this contract achieve what I want it to?”
In the last few days, I have looked at three separate contracts in relation to which the anser to the first question was ‘yes’, but the answer to the second question was a loud and definite ‘NO!’
In 2 of the 3 cases, whilst in totally different industries, the agreements effectively involved the clients setting up supply chain arrangements under short-term agreements. On the face of it, whilst there were some drafting issues, these could easily have been resolved. However, on digging deeper into what the clients actually believed they were signing up to, I found that in both cases, they were expecting long term, exclusive, product supply agreements – with a long term income stream to match. They were therefore quite shocked when I explained what their contracts actually meant and how limited their rights would be.
In the third case, I was being asked to review terms and conditions, and these were generally ‘OK’ in relation to the products which the client sells. However, the client’s greatest source of income comes from the provision of services – and these were not even mentioned.
As well as creating a huge amount of uncertaintly, the above examples highlight a common problem – which is the tendency to focus upon what a contract contains, rather than what is omitted. This is an especially easy trap for lawyers with no practical commerical experience, and business people with no legal experience, to fall into. It is also a serious side-effect of cut and paste drafting (as to which, see my earlier article: The Cut and Paste Trap.)
So, when reviewing or constructing a contract or a set of terms and conditions, what is the best approach?
Firstly, put any drafts on one side, and get a blank piece of paper!
Write down your own understanding of the arrangement (in English, not ‘legalese’), and try to think chronologically. Then ask how long the arrangement will last, and what each party hopes to get out of it. Finally, think about what the other party (or their successors!) could do which would make the arrangement less profitable or acceptable to you – for example, using your ideas to create a product of their own, or not providing you with the information you need to be able to provide your services on time.
Once you have a clear structure, it is much easier for your or your advisors to answer that all-important question: Does this contact achieve my objectives?’ – and to suggest amendments based upon ensuring that the opportunities for misunderstandings are minimised.
This approach results in a win-win situation and is the basis for building great business relationships – which is the objective of all of us in business!
Tags: client relationships, contract, Cut and Paste, disputes, practical, terms and conditions, Uncertainty
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January 13th, 2010
There have been several blog posts recently upon why many lawyers seem unable to break away from the concept of strict hourly billing. Some of these can be found on a blog by a company called Exari. I have no association with this company and do not endorse their products, but you may find some of these posts interesting – if not a little scary: http://blog.exari.com/
It’s obviously difficult to estimate how much time it is going to take to draft a contract from an initial discussion with a client – and sometimes things turn out to be a bit more complicated than originally anticipated and take longer than planned. However, that’s life!
Buying any services with a deliverable – for example a contract, – on an hourly basis can leave you with an unexpectedly high bill unless you know how quickly (and effectively!) someone works. However, buying on a fixed fee arrangement can also mean buying an ‘off the shelf’ product, which may or may not be suitable for you. So what’s the best solution?
If someone is billing by the hour, ensure that spend limits are agreed in advance and that you receive regular progress reports and spend-to-date figures. That way, at least you won’t faint when you get the bill! Alternatively, if you opt for the fixed fee route, select your supplier based upon the referrals and recommendations of people you trust, so that you know that you will get what you are paying for.
All of my contracts and terms and conditions are tailored to the specific needs of the client, and whilst some clients prefer me to work on an hourly (or daily) basis – particularly when I am attending meetings with them to support their negotiations, – many smaller businesses prefer work to be done at a fixed fee. Accordingly, I offer both – and also retainer arragnements for clients who need more regular help and advice.
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January 6th, 2010
To contract ….. or not!
What do you think of when you see the word ‘contract’?
Unfortunately, through experience, people have come to associate the word ‘contract’ with other words beginning with ‘C’ – ‘confusing’, ‘complex’, ‘combative’ and ‘costly’. However, the alternative meaning of the word is as a verb meaning to shorten, so why can’t contracts be ‘concise’?
Good News – they can! Further, if they are drafted by someone who takes the time and trouble to undertstand your business needs, they can also be ‘clear’, ‘collaborative’ and ‘cheaper’.
If you can’t understand your contracts, then it is not unreasonable to assume that yor clients won’t be able to either – which makes the whole exercise pretty pointless. Also, money spent on preventing disputes is worth twice that spent on helping you in court – by which time you will already have lost your customer, potentially your reputation, and probaby some of your hair along the way.
This approach also applies to other documents involved in the contractual process. Here are 2 clauses, the first of which is taken from a real-life tender I reviewed – complete with typos. See which you prefer.
The confusing, complex, combative and (probably) costly one:
“The tender remains open for 30 days unless previously withdrawn. Thereafter, the tender is subject to confirmation or adjustment by the contractor/company. Acceptance of the Tender/Quotation/Estimate by the customer is deemed that the customer accepts the Terms & Conditions of Trading by the contractor and supersedes any Terms & Conditions as laid down by the customer, unless agreed upon in writing by the contracctor within 30 days of the customer accepting the tender.”
Or the clear, concise, collaborative (and almost certainly cheaper) one:
“If you wish to accept this tender, please do so by [insert dae]. If we wish to withdraw the offer to tender before that date, or agree to extend the date by which you may accept, we will notify you in writing.
Please note that by accepting the tender, you will also be agreeing to our Terms and Conditions (attached), which will apply in place of any terms and conditions of your own in respect of the work to be undertaken.”
“Res ipsa loquitor” as my old Latin teacher used to say – a no-brainer!
Why not make your resolution for 2010 to dump your confusing, complex, combative and costly documentation – and replace it with some which is more appropriate to business in the 21st century?
Happy New Year!!
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November 17th, 2009
Have you ever been tempted to create an Agreement by cutting and pasting? Here’s what can happen….
I have recently been sent a contract for review, and what I discovered was a mish-mash of bits and pieces which had clearly been cobbled together from several different agreements.
The result? A potentially very costly mess!
Many of the terms used were not defined, and the (single) subject matter of the agreement (defined as ‘the Products’) was also referred to in various places as:
“the Work (as defined below)” (It wasn’t!)
“the Research Services”
“the Results”
“the Development”
and a couple of others which I can’t repeat here for fear of identifying the parties.
None of these terms were defined in the document or used in any consistent manner – in fact they seemed to be used interchangeably. In addition, there was reference in one definition to a Schedule which did not exist and was not referred to anywhere else in the contract.
So, does this matter, or is it just nitpicking?
Unfortunately, not only does it matter, but it can have serious implications. Here’s why:
The payment terms did not refer to the Products at all – despite several of the undefined terms being used in it, – and the warranty clauses did not link back to the Products either. Accordingly, the only possible ‘agreement’ between the parties would have been for the provision of Products, without the benefit of a warranty, for an undefined (and therefore, by law, a ‘reasonable’) payment.
However, in this case, the wording created such confusion and uncertainty that the whole agreement would almost certainly have been unenforceable.
This was a high value, technical contract, which ran to several pages. However, whatever the nature or value of your agreement, if you have taken the trouble to negotiate a deal, surely you want it to be enforceable?
If you have an agreement that you know (or suspect) has been created by cutting and pasting, and want to be sure that you are protected, please get it checked out – it may have been cheap to create, but it may also not be worth the paper it is printed on.
Tags: Cut and Paste, Definitions, Enforceability, Uncertainty
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November 5th, 2009
“No-one ever looks at our Terms and Conditions”
This is what a new client told me recently – when both the Managing and Sales Directors confessed to never having read their own company’s terms and conditions of sale. So, the question is: ‘Do Terms and Conditions really matter if no-one ever reads them?’
If there should be an area of dispute between you and one of your customers, your terms and conditions – provided they apply to the transaction at hand – will be the rule book by which any misunderstandings can be resolved and your business relationship preserved.
Unfortunately, for some organisations, this is the first time they take any real interest in them.
The problem with this approach, is that it equates to buying an insurance policy in a sealed envelope – without having any idea of the cover it provides – and only looking at it in the event that you need to make a claim. By then, if the policy does not cover the circumstances of your claim, it will not protect you. The same applies to your terms and conditions.
So, even if you only plan to use your terms and conditions in the event of a dispute, (and anyone who has read my previous article on Using Terms and Conditions as a Sales Tool will know that they can be so much more useful than that,) you might think it wise to ensure they are carefully drafted.
Do your terms and conditions reflect your particular circumstances, and set them out in such a way that both you and your customers can refer to (and understand) them whenappropriate? If not, now might be a good time to shut the stable door before the horse has bolted.
Tags: client relationships, clients, customers, disputes, terms and conditions
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October 29th, 2009
Have you ever thought about using your terms and conditions as a sales tool and not just as a mechanism for dispute resolution?
A well drafted contract / terms and conditions should set out very clearly the responsibilities of both parties, and look at the PRACTICAL as well as the legal issues which may arise. In doing so, it should achieve three things which will help you in the sales process – and I will use a machinery repair contract as an example:
Firstly, your terms and conditions can prevent disputes arising by avoiding the misunderstandings which usually create them. This may be enough to disqualify some enquirers – for example, if you only offer a service after 5pm for clients within a 25 mile radius of your base, there is no point in spending a long time persuading the client how fantastic a service you provide if they are 30 miles away and want all their servicing done in the evenings.
Secondly, if they contain reasonable provisions and are written in user-friendly terminology it will demonstrate your desire to have a successful and long-term relationship with them – engendering trust and building that all important rapport. For example, by acknowledging that things don’t always go according to plan and explaining how you will deal with that situation, you can both highlight your commitment to customer service and manage expectations at the same time. An appropriate clause for our machine repairer might therefore be: ‘If the necessary spare parts are not in stock, we will use all commercially reasonable endeavours to have them delivered and installed within 24 hours’.
Thirdly, they can enhance the emotional ‘pull’ so critical in sales by reinforcing the issues of importance to the client. For example, if the machinery being maintained is in sensitive areas (e.g. a laboratory) the client may be concerned about confidentiality. So, if you can, make a positive (but not onerous) statement such as: ‘We warrant that all our repair operatives have signed a contract of employment requiring them to respect the confidentiality of our clients’ information’. This will remind the client of their concern, reassure them, and perhaps set you apart from your competitors!
Fourthly, if you have the contact with you and are able to go through it with the client, they not only know that there will be no ‘small print’ to worry about later, but you do not lose the momentum by having to send out the contract later – when they have had chance to change their minds!
Many contracts / terms and conditions are full to the brim of the type of clauses used to defend your business in the event of a complaint, and are regarded as a ‘weapon’ to be removed from the filing cabinet only in the event of such a situation arising. I would strongly argue that by then, the client is lost – not just for this deal, but for all future ones – and that as bad news travels fast, other (potential) clients may not be far behind.
In contrast, I always advise my clients to see their legal documentation as a part of their sales pitch – and to have it drafted accordingly.
Do you think your terms and conditions could be improved to turn them into more of a sales promotion and client retention tool than a blunt instrument?
Tags: clients, contract, sales, terms and conditions
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September 29th, 2009
It seems as if the list of definitions at the beginning of contracts gets longer and longer, and often they are very useful. However, they must be carefully constructed.
I have come across the following example today of a ‘circular’ definition:
Definition: ‘Protocol’ means the protocol which the supplier must provide to the client in accordance with Clause 2
Clause 2: The supplier will provide the client with the Protocol
This definition creates a perpetual loop. As the supplier, you would read to clause 2 and see that you have to provide a Protocol – you would then look to the definition to see what it means, and find that it is the document you have to provide under clause 2!
As a lawyer who focuses on the practicalities of contractual agreements – and on making them as short as is reasonably possible – if I was re-drafting this, I would firstly decide whether a definition was required at all. If it was, I would probably re-word it along the lines of the following:
‘Protocol’ means a protocol in the form set out in Schedule 1, or in such alternative form as the parties shall agree in writing from time to time.
The first part of the wording gives the parties certainty as to what is meant, and the second part gives them the flexibility to make future changes.
Do you have definitions in your agreements which don’t make sense to you or go around in circles? If so, I’d be pleased to hear about them.
Tags: certainty, Definitions, flexibility, practical
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