That said, any document which will bind you legally – with the potential hassle and costs which breach will inevitably involve – is an important document.  Accordingly, if you are a potential Franchisee, please take the time to carefully read it, and to ensure that you fully understand and can accept its obligations, before you sign up to it.

Standard Franchise Agreements are very one-sided documents; heavily favouring the Franchisor – but they have to be.

An established Franchisor has a reputation to protect: a reputation which has been built by ensuring that all of its Franchisees operate in an identical way and to the same stringent quality standards.  The Franchisor also has trademarks to protect, and knowhow and other confidential information which could be extremely valuable to his competitors.

If any Franchisee goes ‘off piste’ by not following the Franchisor’s standard branding guidelines, or by straying away from the Franchisor’s operating methods, the results could therefore be very serious.  Not only could the Franchisor’s reputation be damaged, but the value of all the other Franchisees’ businesses could also be reduced.

The aim of the Franchise Agreement is therefore not only to protect the Franchisor – it is also to protect all of the Franchisees, by ensuring that everyone plays by the same rules.

For this reason, all the Franchisees will be required to sign up to the same fundamental obligations as each other.  That doesn’t mean, however, that there is no scope for negotiation.

The terminology used in many Franchise agreements is unnecessarily onerous.  For example, an obligation ‘to comply with all of the obligations set out in the Franchisor’s manual, and any others which are notified to the Franchisee in writing from time to time’ is so broad that it could potentially be used to require you to run naked down the High Street every morning before opening up for business!

So, as a Franchisee, what do you do when faced with clauses which are drafted so broadly?

If your potential Franchisor is long established and has a good reputation, then you may be willing to assume that this is just ‘lawyer talk’ and that, in reality, the Franchisor will operate reasonably and in the best interests of you both.  It is worth doing your research though:  if the Franchisor has a high turnover of Franchisees, then you will want to know why.

On the other hand, (and especially if the Franchisee is newly established,) there is no reason why you shouldn’t try to negotiate for an Agreement which more fairly reflect the intentions of the parties:  After all, people who are unreasonable during initial negotiations don’t tend to become any more reasonable after the Agreement is signed – and an Agreement which spells out the Franchisor’s requirements in plainer English is not ‘fundamentally different’, just less likely to result in unnecessary misunderstandings.

Other clauses a potential Franchisee should look for in the Agreement – and which they may be able to negotiate – are those designed purely to raise additional revenue for the Franchisor.  For example, a requirement for the Franchisee to purchase printed materials or other (non-food) supplies or services from a specific provider is simply likely to mean that the Franchisee will pay more, and that the Franchisor will obtain some sort of commission on each sale.  It is reasonable for the Franchisor to require that the relevant goods or services mee tspecified quality criteria, but provided they do, then there is no reason why the Franchisee shouldn’t be allowed to use the supplier of his choice.  (Food supplies  may reasonably be excluded because of the obvious risk to the overall brand if a customer was to get food poisoning.  Clearly, the Franchisor will want to keep very tight control over ingredient suppliers.)

One final point to make is what happens if another Franchisee fails to comply with the terms of the Agreement – adversely affecting your Franchise?

Contractually, there are a couple of ways to approach this.  Ideally, each Franchise Agreement should require the Franchisor to protect the Franchisee’s business by enforcing the Agreements he has with his other Franchisees as necessary.  A clause giving all other Franchisees the right to directly enforce each other Franchise Agreement where appropriate could also be included.  However, these ‘legal’ options are costly and risky to try to enforce.  Better, therefore, to look for a Franchisor who can demonstrate a good track record of developing good relationships with his Franchisees, spotting potential issues, dealing with them before they develop, and hence working for the benefit of everyone involved.

In summary, therefore, Franchise Agreements are long, complex, and often quite unreadable documents – but if drafted with the genuine intention of protecting both parties, and carefully checked before signature, they can be the launch-pad to a profitable business.

Happy franchising!

When you buy a fitted kitchen this is the process you usually go through:

The designer sketches out a plan of the space you have;

1. You determine the overall ‘look’ you want, the important elements, and where you want those to be placed in the finished design;
2. Some standard sized cupboards, drawers etc are fitted around the ‘must-have’ items – to the extent they fit in with the desired scheme;
3. Bespoke units are then designed to fill in the gaps – to exactly match the other units in style, but built in non-standard shapes or sizes;
4. The whole plan is reviewed and adjusted as necessary – to achieve both the functionality and the overall ‘look’ you want.  (Sometimes, this even means going back to point 2);
5. When the kitchen is complete, you add the finishing touches – the pictures, flowers etc.

What you do not do, is buy a kitchen – a set number of certain sized units and appliances, – throw out the ones you don’t want, and then try to make the rest fit by chopping lumps off of some of them and joining others together with units you picked up at a car-boot sale and bits of plywood out of your garage!

But what if you did take that tack?  What would be the result?

You would find some areas of the kitchen would be quite unstable – a bit ‘rickety’ as my grandmother would have said – giving the impression that they might let you down when you really needed them.  In contrast, other units would no doubt be as solid as a rock – but it’s a fair bet that they would be the ones you most wished you’d left out or changed in some way.  Then, of course, there are the bits of plywood – I wonder what your visitors would think about those?

So what’s all this got to do with contracts?

Whilst no-one actually adopts the second approach to kitchens, many people do when it comes to contracts or terms and conditions: They obtain a template or ‘standard’ document (bought or ‘borrowed’,) and try to adapt it.  However, red-lining the bits you think you might not need (or don’t understand), shoe-horning in a few bits from other people’s documents here and there, and drafting the odd clause yourself, is never going to result in an effective and reliable document.

No two businesses are exactly alike.  So, cutting and pasting other documents to create your own involves significant risks.  In particular, there is a great danger that those clauses you most need to be able to rely on will be inadequate when applied to your particular situation.  Even worse, the ‘rock-solid’ ones could easily turn out to be just those you should have changed, because they actually work against you.  Also, the plywood – the bits you drafted yourself – generally stand out like a sore thumb and make the whole document (and you) look unprofessional.

That doesn’t mean, however, that the only alternative is some form of ‘bullet-proof’ document prepared at great expense.  Aside from anything else, ‘bullet proof’ is an expensive feature which is only useful when you likely to be shot at!

Producing your document from a blank sheet of paper, and building it up using a similar process to designing a fitted kitchen, is by far the surest way of achieving what you want.

Begin each contract by deciding what you want to achieve and determining the ‘must have’ items and where they need to go in the document.

The next step is to insert the standard clauses – but on their merits, rather than by just throwing the whole lot in en masse.

The penultimate phase of the document building process is then the most important – and this is the creation of the bespoke items needed to fill in the gaps and tailor the document to your own business needs – the aspect which template documents don’t adequately address.

This ‘bespoking’ process involves considering those situations which could result in misunderstandings, or which might otherwise result in you making less profit on your arrangement than planned – and addressing them.  Some of these issues will be similar to the situations faced by other people, but rarely do they involve the same ‘mix’, and so every situation should be considered on its merits. It is occasionally even the case that, whilst considering these possibilities, it becomes apparent that there is a better, safer way to structure the arrangement as a whole – and in those cases, as with the kitchen, this might involve some re-arranging and re-writing of the terms in order to achieve the commercial
objective.

Finally, there is what I think of as the ‘finishing touches’.

In the same way that a kitchen communicates something about you, your values and your lifestyle, many businesses work hard at creating a corporate style but then forget all about it when it comes to their contracts.  The effect is that ‘approachable’ can suddenly become ‘stroppy’ and ‘professional’ can become ‘sloppy’.  Using wording which is sufficiently precise to protect you, but still uses language which reflects your house style, however, will reinforces your branding .

So, the next time you need a contract – think kitchens.  A well-built kitchen will last you a long
time and help make your home a relaxing place to be.  Well drafted contracts do the same for your businesses.

So while the “handcuffs” approach scares many people away from using written contracts, they also know deep down that the alternative “handshake” doesn’t afford them the protection they really need.

Is there an alternative approach? Something which is neither a handshake nor a handcuff, but which allows both parties to sleep soundly at night? Yes, there is, and I call it the “warm blanket” approach.

If you’re wearing handcuffs, there’s no doubt that the other party is in charge – you have been forced into a situation you are not comfortable with and you feel restricted and resentful. On the other hand, when relying on a handshake, while you may trust the other party, there is always that nagging doubt that your recollection of what was agreed might not be the same as theirs, or that they may expect too much of you. Either way, it’s a sure sign of danger ahead.

Virtually everybody enters into contractual relationships believing that everything will work out. However, the proliferation of commercial litigation lawyers tells us that this is a case of the triumph of hope over experience. The reality is that in the rush to get the deal done, we can often forget that our understanding of it may differ to the other party’s – or that they may eventually try to wring an extra pound or two of flesh out of us.

Bring in the warm blanket.

The “warm blanket” approach involves looking at the real commercial risks that you face, bringing them out into the open, and dealing with them up-front in a clear and open manner. If both parties understand what is expected of them – and clients and customers often forget that they have a role to play in making a deal successful – the opportunity for disputes is significantly reduced.

This approach is more collaborative, less combative approach to contracts than the “handcuffs” approach, but is also much more business-like and considerably less open to misunderstandings than the “handshake”. It is also a very pragmatic and cost-effective solution – hence the resemblance to a large woollen blanket: strong yet soft, and (importantly), designed to keep both parties warm.

When disputes do occur over contracts, it’s rarely some intricate legal issue (for example whether “he” includes “she” and “they”, or exactly what constitutes “force majeure”). Disputes are nearly always about a more practical problem – like the timing, or exactly what was included in the price.

Focusing on the issues which people really fall out about is the key to preventing disputes, and this means making sure that everyone understands the boundaries of the arrangement by creating contracts with clarity. Drafting contracts which are clear (so that everyone understands them) and concise (so that the size and complexity of the document is proportionate to the risk involved in the deal), not only reduces the likelihood of future disputes, but also saves time, money, and a great deal of hassle.

No-one (except a litigation lawyer) wants to go to court, so doesn’t it make more sense to concentrate your efforts on preventing disputes rather than resolving them? This is the equivalent of wrapping yourself in a warm blanket before you go to bed, rather than hunting for one when you are cold in the middle of the night!

The creation of clear and concise contracts is essential in helping you develop your brand. Contracts not only sets up the relationship from the outset, they also create a basis for how your company is viewed. Where an excellent rapport is created with one company, this can be a spring board for future “good business karma” within an industry.

Given the above, it is surprising that there is frequently a serious disconnect between the contractual documents which organisations use and their general marketing materials. Sloppily drawn contracts suggest a lack of professionalism and attention to detail. On the other hand, ‘warm’ prospects can soon turn ‘cold’ when faced with a long and complex document written in legalese.

With global corporate agreements becoming widely accepted as a potential expectation for growing businesses, it is important to create secure terms which everyone can understand, appreciate and exercise across all borders. Contracts should be a tool to unite and uplift all parties involved; they should act as a move toward progression – not act as handcuffs that bind.

Both handcuffs and handshakes can ruin a good business relationship: the one is too tight and the other too loose. However, adopting a fair and collaborative approach using contracts with clarity is one of the easiest ways to maintain and improve those relationships.

Warm blankets not only provide comfort for children – they can do the same for businesses too.

The first thing people think of when faced with the word ‘invention’ is ‘patent’, but for many ideas, patents are not going to be an available means of protection.  Obviously, this is something you will need to check out with a patent attorney, but even if the finished item will be patentable, the initial idea will have to undergo a degree of development and testing before the patent application can be filed.  It is in this ‘limbo’ where the problems, – and the worry – often occur.

Firstly, let us be quite clear:  You cannot obtain a patent once your idea has entered the public domain.  This means that if you tell anyone else about it without placing them under a binding obligation to keep the information confidential first, your right to a patent will be lost.  In the circumstances, if there is even the vaguest possibility that the idea might be patentable, secrecy at these early stages is crucial. 

What it it’s not patentable?  Well, in that case, the more people who know about it, the more chance there is that someone with more money and contacts than you will develop it and bring it to the market first.  So, you need to keep your idea ‘under wraps’ until you have it sufficiently well developed for you to bring it to market, or for it to be an attractive proposition to an organisation which has the resources to develop and commercialise it in partnership with you.

In each case – patentable or not – there are essentially two things that you need to protect: the idea itself, and the detail, such as the method of manufacture.

The only way to protect your idea is to tell only those people who need to know, and to do so only under the protection of a legally binding contract which prevents your information from being disclosed to others – or used – without your consent.  So, for example, if you wanted to talk to a designer or researcher about your idea, your initial contact should be limited to  telling them just enough about the concept to get their interest – eg ‘A novel way to protect patients from accidental paracetamol overdoses’ – without going into any detail about what that ‘novel way’ is.   Only once they have signed a suitable confidentiality agreement (sometimes called a secrecy agreement, or an NDA or CDA) would you then disclose any detail of the idea to them.

Confidentiality agreements are only part of the story, however – even at this early stage of your project – as you need to be clear in your own mind what is confidential, who discovered or wrote it, and when.  This is particularly important if you are working in a team of people who are not working as employees of a single organisation – eg if it is a group of friends.  As a project team, you need to know exactly who has access to what, that (in the ‘friends’ scenario) you have all entered into confidentiality agreements with each other, and that confidential information is marked as such and dated with the date it was acquired or produced and with the names of its owners.  This might seem over-the-top, but if the idea ‘dies’ and is then resurrected by one of you in a few years’ time, (perhaps when that person has left your current group, and has access to more resources or potential customers,) the rest of you will want to be able to prove that it was not just that one person’s idea!

The other problem with relying on confidentiality agreements alone is what happens if they are breached.  You may be entitled to compensation – but it will cost you time and money to make a claim, and they may not have any money to pay you anyway.  Even worse, the cat will be well and truly out of the bag by then, and the chance to make your fortune lost with it.  Better then, to prevent that situation from arising in the first place where possible.

That’s not to say that confidentiality agreements are of no value.  They are useful to remind people of their obligations – and to show that you know what you are doing, that you are professional and business-like, and that you don’t want to be messed around.  When dealing with people or organisations that have assets and reputations they would prefer to keep, they also provide some degree of security.  However, they are of no use alone – they need to be backed up by physical security measures.

I have already said that marking information as confidential is important.  More important, however, is to keep it locked away, and to ensure that only those people who need to see it (and have signed a confidentiality agreement) have access to it.  Having confidentiality agreements in place, but then leaving your ideas lying around your office or house for every visitor to see is somewhat pointless!!  Similarly, when going to meetings with people like your developer or a consultant – or even a prospective purchaser or licensee – try to avoid leaving confidential information with them.  Instead, show it to them, and then bring it away with you again.  The fewer copies of the information there are, and the more control you have over who has access to them, the better.

Ideally, also keep a record of how many copies there are of each drawing or other document, and a log of who has them at any one time.

In order to get the attention of a big organisation, you are going to need to get your idea to proof of concept stage – ie prove that it can work and that it is sufficiently different/bigger/better than what is already out there in the market place.  This could involve you in designing prototypes, packaging mock-ups, computers screen shots, writing software, obtaining tooling, obtaining a market research report etc. 

In some instances, you might ultimately be able to register your designs or obtain a patent.  However, at this early stage of the project, your designs will not be sufficiently well developed and so the only real intellectual property available to you will be in the copyright in your work.

You will automatically own the copyright in any physical representation of the product (a drawing or photograph) which is produced by you.  However, reinforce this by marking all items you produce with the copyright symbol, your names (or your company name) and the date.  Some people even suggest posting a copy to yourself and keeping the unopened envelope somewhere safe so that you can refer to the date-stamp as evidence of the latest date the material could have been produced.

Where something is produced for you, you will only own the copyright if you paid for it and the contract with the producer doesn’t allow them to retain it.  So, ensure that the contracts with those you engage to work on your project deal with confidentiality and intellectual property thoroughly. 

Owning the copyright in something means that you can stop people from literally copying it.  Accordingly, software code (for example) could not be copied exactly by someone else.   However, it is easy to make enough changes to a piece of code or a written report to enable the same functionality or effect to be achieved without it being an exact copy.  Therefore, the physical protection of your work is again more important – lock it away, encrypt software, and restrict the number and nature of the people who have access to it. 

Think Coca Cola – yes, they have registered trademarks and designs, but the recipe is ‘just’ a secret!!

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. So the first question to spring to mind might be – why is the other party starting out upon their relationship with me by behaving like a bully, and does this behaviour really bode well for a successful working relationship? In contrast, the second question might be ‘What does accepting these terms say about how I value my contribution to this arrangement?’

In reality, (leaving aside the minority who are greedily looking for short-term gain over long-term relationships,) most people neither want nor actually understand the complexities of ‘clever’ contracts. So, this type of problem is often caused by the advisers, some of whom engage in ‘contractual one-upmanship’ – who can impose the most unreasonable clauses – either as part of an ego trip, or because it’s what they feel their clients want.

In these situations, what tends to happen is that the parties lose patience with the negotiation process. This leads to one of two outcomes: Either the whole deal falls through, or the parties start working together outside of the agreement which is being negotiated – ie, under their own unwritten rules.

Good contracts lead to profitable long-term relationships because they accurately record the details of the agreement which the parties have reached in a way both parties understand – preventing the disputes which result from a failure to properly manage expectations, and which end up destroying reputations. However, to create a good contract, you need to start from a position of trust and reasonableness.

So, in the situation described above, a good start would be to arrange a round-table discussion rather than batting emails backwards and forwards. Explain that you don’t want to ‘play games’, and that you simply want to achieve a contract which is fair and reasonable, and which reflects what BOTH parties actually want. Having the other party present for this helps them to understand your point of view (something which won’t be passed on if it’s their adviser causing the problem), and having your own adviser present means that there’s no opportunity for the other adviser to blind you with (legal) science.

Of course, being ‘fair and reasonable’ doesn’t mean giving all your rights away. It simply means understanding that there will be risks to both parties in any potential arrangement and that the best course of action is to balance those risks with the benefits to be derived under that arrangement. Accordingly, knowing your risks – and to what extent you are prepared to accept them – as well as thinking the position through from the other party’s perspective, will be good preparation for your negotiation.

By working together collaboratively in this way, all parties achieve the ideal solution – a win:win situation leading to long-term trust and a reduced likelihood of disputes. The whole process is also much faster and less expensive than playing ‘contractual one-upmanship’. So, if it’s your contracts that are causing the problems, now might be a good time to re-assess what they are saying about your business.

Contracts don’t have to be measured in inches – it’s a long time since lawyers were paid by the word. Neither do they have to be some academic foray into the distant realms of possibility. On the other hand, they do have to afford you the protection you need when things go wrong.

We are all used to the concept of risk analysis as it pops up in most areas of our life, – from Councils taking the conkers off trees in case someone throws a stick up and it falls and injures a passer-by (I didn’t make that up!), to assessing the risk that our computers will send all our personal data across the ether to a student hacker. Why then, do we so often fail to ‘risk-assess’ our contractual arrangements?

It often seems as if the contractual process is, for many organisations, a purely administrative one: Agree deal, find document that looks as if it might fit the bill, change the names and products, sign it and file it. Note that there was no actual consideration of the relevance of the document in that process – no assessment of the risks involved in this particular transaction and how they might differ from the previous one.

For example, I’ve come across cases where no account was taken of the different lead times or specialist safety requirements and storage conditions in agreements for the manufacture of products – both of which could have had significant cost (and liability) implications. Similarly, when taking on a new customer, it may be wise to look for a quicker get-out clause than you would use in a contract with an established customer, or to spell out what you will (and will not) do for them in greater detail if they have less experience of dealing with organisations like yours.

The corollary to the above is an agreement of mine which has recently been reviewed by a firm of solicitors acting for one of the parties. Their suggestion that we ought to include a clause making it clear that all payments would be made in Sterling made me smile – the agreement is between two East Midlands (UK) organisations with no international connections and involves relatively small sums of money. What did I say about lawyers being paid by the word?!

My advice to anyone negotiating or drafting contracts would be to carry out a risk assessment, but be pragmatic. Look at:

• What can go wrong?
• What is the probability that it will go wrong?
• What are the implications of it going wrong in terms of time, money and reputation?
• Is the risk one you are prepared to live with, or should it be covered by the contract?

No contract can protect you against all possible risks, and if a risk is slight and the implications minor, you may be prepared to accept that for the sake of the brevity of the document. However, if the probability of the ‘event’ is high and/or the implications are severe, it ought to be covered.

How each identified risk which you want to have covered will actually be dealt with in the contract is then a matter for a closer look at the risk analysis. Simply highlighting the matter may be enough for a highly probable – low risk event, whereas a more detailed and ‘technical’ clause will be appropriate for a high-risk event.

The overall aim should always be to make the length and complexity of the contract appropriate to the risks you face. If it needs to be 20 pages long, fine. But if it only needs to be 2 pages long – save the trees, and your money!

Don’t risk it.  Always create your contracts with clarity.

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

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.

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 .

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!