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.

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.

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.

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?