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.

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.