Contracts are the foundation of business operations. Every significant business relationship is governed by some form of contract, whether explicit and detailed or implicit and abbreviated. The specific terms of these contracts substantially affect the rights and obligations of the parties, the allocation of risk among them, and the practical operation of the business relationships they govern. Despite the centrality of contracts to business operations, many businesses approach contract work without adequate attention to the substantive considerations the contracts should address. The result is contracts that fail to protect business interests, that produce disputes when ambiguous provisions are interpreted differently by the parties, and that create unexpected obligations the business did not intend to undertake. Engaging an experienced business law attorney for contract work produces materially better outcomes and protects the business across all of its contractual relationships.
The Substantive Importance of Contract Provisions
Every contract provision serves a purpose, and the cumulative effect of the various provisions establishes the legal framework that will govern the relationship. Some provisions address the basic substantive obligations of the parties, including what services or goods will be provided, what payments will be made, and what timing will apply. Other provisions address the various contingencies that may arise during the relationship, including what happens if either party fails to perform, how disputes will be resolved, what limitations on liability will apply, what termination rights are available, and various other dimensions.
Each of these provisions deserves careful attention. Generic provisions copied from templates often fail to address the specific situation the contract governs. Provisions accepted without careful review may impose obligations the business did not understand. Provisions that should be included but are omitted leave the business without protections that careful drafting would have provided. A Business Law Attorney who reviews and drafts contracts with attention to the specific situation produces contracts that actually protect the business and that address the dimensions that matter to the specific relationship.
Reviewing Contracts Before Execution
Many business contracts are drafted by the other party and presented for execution. The business, under pressure to close the deal, often executes these contracts without thorough review, relying on the assumption that the other party would not propose unfair terms. This assumption is frequently wrong. Contracts proposed by other parties typically protect the proposing party’s interests, often at the expense of the receiving party’s interests. The provisions that warrant the most careful attention are often the ones that the receiving party is least likely to read carefully.
Pre-execution review by experienced counsel identifies provisions that should be negotiated and provides the framework for those negotiations. The review often surfaces issues that the business would not have recognized independently, and that would have produced significant problems if accepted as proposed. The cost of pre-execution review is modest. The cost of executing contracts with unfavorable provisions can be substantial and ongoing throughout the term of the contract. The investment in review consistently produces returns that exceed the cost many times over.
Negotiation Strategy and Execution
Contract negotiation involves not only the substantive terms being negotiated but also the strategic approach to the negotiation itself. Effective negotiation requires an understanding of the relative leverage of the parties, the issues that matter most to each side, the trade-offs that may produce acceptable resolutions, and the timing considerations that affect the negotiation dynamics. Business owners attempting to negotiate complex contracts personally often miss strategic opportunities that experienced negotiators would identify.
Business law attorneys with substantial negotiation experience bring the strategic perspective that produces favorable outcomes. The attorney understands what is realistic to seek, what is reasonable to concede, and how to frame the negotiation in ways that produce mutually acceptable resolutions. The combination of substantive legal expertise and negotiation experience produces contract outcomes that protect the business while preserving the underlying business relationship. Attorneys who handle contract negotiations regularly bring this combination effectively; attorneys without this experience often produce less favorable negotiated outcomes.
A Story That Shows What Contract Counsel Provides
A friend who runs a small business was approached by a major potential customer about a significant ongoing contract. The customer presented its standard contract template and asked my friend to sign it to begin the relationship. My friend was excited about the opportunity but had the sense that the contract deserved careful review before execution. He engaged a Business Law Attorney who reviewed the proposed contract.
The attorney’s review identified several provisions that warranted attention. The payment terms were substantially less favorable than industry standards, with extended payment periods that would have created cash flow challenges. The liability provisions imposed broad indemnification obligations on my friend’s business that exceeded what was reasonable for the relationship. The termination provisions allowed the customer to terminate without cause on short notice while requiring my friend’s business to provide much longer notice for any termination. The intellectual property provisions assigned to the customer rights that my friend’s business needed to retain for its other customer relationships. The attorney prepared a comprehensive markup of the contract with proposed revisions addressing each of these issues. The negotiation with the customer resulted in most of the proposed revisions being accepted, producing a final contract that protected my friend’s business while still providing the customer with the substantive relationship it was seeking. My friend told me afterward that signing the original contract would have produced ongoing problems and that the investment in attorney review had been one of the best business decisions he had made.
Customer Agreements and Their Specific Considerations
Customer agreements warrant specific attention because they govern the relationships that produce the business’s revenue. The provisions that address the scope of services or goods to be provided, the pricing and payment terms, the warranties and disclaimers, the limitations on liability, the intellectual property arrangements, and various other dimensions all affect the business’s operations and risk exposure. Well-drafted customer agreements protect the business while providing the customers with the clarity and protection that they reasonably expect from the relationship.
Businesses that develop standardized customer agreements with attention to the specific considerations of their industry and customer base produce better outcomes than businesses that use generic templates or that negotiate each customer relationship from scratch. The standardized agreements provide consistency that supports efficient operations while addressing the substantive considerations that the business has identified through experience and counsel. Business law attorneys help businesses develop these standardized agreements and update them as circumstances and experience indicate.
Supplier and Vendor Agreements
The agreements governing relationships with suppliers and vendors deserve similar attention. These agreements affect the business’s costs, the quality and timeliness of the supplies and services received, the warranties and recourse available if issues arise, and various other dimensions that affect operations. The supplier or vendor often proposes the initial terms, and these terms typically favor the supplier. Business owners who accept proposed supplier terms without careful review often accept arrangements that disadvantage their businesses in ways that become apparent only when issues arise.
Experienced contract counsel reviews proposed supplier agreements and negotiates terms that better protect the business’s interests. The work includes attention to the substantive obligations of the supplier, the warranties and remedies for quality or performance issues, the pricing and payment terms, the termination provisions, and the various other dimensions that affect the relationship over time. The investment in careful contract work on the supplier side produces ongoing benefits that compound over the duration of the relationships.
Employment and Independent Contractor Agreements
The agreements governing relationships with workers, whether classified as employees or as independent contractors, involve substantive considerations beyond the standard contract dimensions. The classification itself must be properly supported by the actual relationship, and misclassification can produce significant legal exposure. The substantive terms must address compensation, benefits if applicable, intellectual property assignment, confidentiality, restrictive covenants if appropriate, and various other dimensions. The agreements must also comply with the various employment laws that apply to the relationship.
Business law attorneys with employment expertise can develop the worker agreements that businesses need. The agreements protect the business’s interests while complying with applicable law and providing the workers with the clarity that supports productive working relationships. Investment in proper worker agreements addresses many of the issues that produce employment disputes and provides the framework that supports professional working relationships.
Operating Agreements and Internal Documents
Businesses with multiple owners require operating agreements, shareholder agreements, or similar internal documents that govern the relationships among the owners. These documents address the substantive issues that arise in multi-owner businesses, including the allocation of profits and losses, the management decisions and how they will be made, the buy-sell provisions that govern ownership changes, the dispute resolution mechanisms, and various other dimensions. The agreements drafted carefully at the formation of the business prevent disputes that often emerge when these issues are not addressed in advance.
Business law attorneys help multi-owner businesses develop the internal agreements that protect the business and the relationships among the owners. The work involves substantial conversation among the owners about the various issues the agreement should address, and the resulting document reflects the agreed approach to each issue. The investment in proper internal agreements at the beginning of the business often prevents the disputes that destroy businesses when the issues are not addressed in advance and emerge later under pressure of circumstances that make resolution more difficult.
Maintaining the Contract Framework
Contract management is an ongoing function that requires periodic attention as the business evolves and as legal and business considerations change. Standard agreements should be reviewed periodically to ensure they remain current with applicable law and with the business’s evolving practices. New contract relationships should be evaluated against the established framework. Issues that arise in existing relationships should be addressed promptly to prevent escalation. The right Business Law Attorney provides this ongoing contract management support and ensures that the business operates with the protection that proper contract work provides across all of its relationships.