October 1 by Jason Smith
There are essential elements needed for a valid, legally-binding business contract to exist. Let’s focus on 4 critical parts that can help you build a business contract that will be successful:
1. Make it mutually beneficial
It might sound obvious, but still should be noted. Partnerships should be mutually beneficial. In my experience, both sides need to gain something from the relationship for it to be worthwhile. Many companies tend to approach the contracting process as adversarial. Perhaps it’s because the lawyers view the process in terms of what could potentially go wrong. But if parties to a contract instead viewed negotiations from a perspective of being partners, the resulting contract can be mutually beneficial. In fact, if both sides approached
the process, not as to which side gets a bigger piece of
the pie, but how working together can increase the size of
the pie altogether, everybody wins.
2. Have clear expectations
I’ve also learned the hard way that people, including business partners, can’t read my mind. I believe business partners should consistently set their expectations with each other. Built into this concept is the notion of constant communication during the negotiation process. Regular communications can prevent information gaps from arising; reducing the amount of time each side spends trying to decipher the intent or context of the other side’s position. Perception may be reality, but consistent and constant communication
can minimize the levels of erroneous perception in the transaction.
3. Keep it simple
Contract drafting is not creative writing; be clear, direct, and precise, not reflective, provocative or entertaining. It’s easy to get bogged down in legalese when you’re trying to plan for every scenario that could unfold during the contract term. But planning for contingencies doesn’t have to read like a Greek romance novel. Too many times we fill our contracts with archaic terms, awkward phrases, redundancies, ambiguities, and useless boilerplate. This increases the possibility of misunderstandings and decreases the productivity of everyone involved with the transaction. Plain English cannot entirely eliminate the risk of misinterpretations, but
it drastically decreases that risk.
4. Never start from scratch… but never recycle
In a world of electronic documents and templates, it is increasingly easy to find language from successful contracts that address your situation. But if you’re like many, you search your hard drive or company’s network shared folders for a previous deal so you can reuse the contract after a basic search and replace scrubbing of the deal-specific information. However, those contracts are typically the result of deal negotiations and if you start from there, you’re likely starting from a negotiated position from the outset, which means the deal can only
move further away from your favor as the new negotiations ensue. Instead, maintaining a central template repository with a related clause library and defined playbook of rules for contract assembly and negotiation can go a long way in building efficiency into the process without sacrificing compliance and risk management. In fact, using a CLM system allows strategic stakeholders like Legal and Finance to pre-define rules for dynamically-included language and fallback provisions so the administrative tasks of the contract lifecycle go smoother and the strategic steps can be addressed as exceptions.
Following these 5 key points will streamline your contract negotiations, make it easier for your customers to do business with you, as well as alleviate any pain points along the way during the authoring and negotiating process.