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.

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.

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

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!

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.