Many business owners decide to "wing it" when it comes to their operative contracts -- the contracts that will lay out the terms and conditions, including how disputes will be handled and what damages a party may be entitled should the other party breach the contract. Trouble with this is that many important contracts that a business will agree to may be up to (or more than) 60 or so pages. It is, therefore, understandable that the business owner may overlook a small clause in the contract that is highly unfavorable to the business and advantageous to the other party.
Contracts do not have to be written by lawyers to be fair, reasonable, and enforceable in court, and many small business owners in fact use either online-bought form contracts or draft their own. There have even been cases where agreements written on napkins have been held to be enforceable, so no, formality is not required. For simple or common transactions, such an approach carries some risk, but not an inordinate amount.
The biggest issue for the "do-it-yourself" approach is that while you as a nonlawyer can most likely do an adequate (or even excellent) job of describing the deal at issue in the contract, it will likely be more challenging to think of all the ways the deal could go wrong and then map out what should happen. Lawyers typically aren't needed to handle the basic details of an agreement -- rather, it's the little things that transform an OK contract into a favorable one, or prevent your needing to hire a litigator down the road. Lawyers --especially those who handle transactions, like us--are pessimistic and detail-oriented, and will scrutinize your contract from a different perspective than you as a business owner. Lawyers also have the experience (whether personally or through their firm) of drafting dozens (if not thousands) of contracts similar to yours, and tuning up those contracts every time case law or litigation leads to better practices. It's therefore not a requirement that you use a lawyer to draft a contract, but if it concerns money or property of significant value to you, it is highly advisable. The problem is that when clients come to attorneys for help with their contracts, they do so without providing all the information needed to properly advise on this type of matter, which leads to the attorney needing (and billing for) more time to sort through the process and draft or revise a contract.
For this reason, we have come up with this checklist, for your use, which will guide you on what to provide your attorney with and how you can make the process more efficient, saving time and money.
Initial instruction—your business lawyer will need to know:
the type of contract you/your organization require (e.g., contract for the purchase of goods)
the background to the matter (e.g., the nature of the goods being purchased, the annual contract value, whether it is exclusive or non-exclusive, whether you are purchasing the goods from a supplier within the country or outside the country) and who to contact for information if you do not have it
the 'big picture' (i.e., are there other key drivers to this deal, which your lawyer should be aware of?)
the approach you want them to take (e.g., is the contract low value/low risk and, therefore, you just want a 'quick and dirty' review/mark-up?)
the other party to the contract (including full contracting name if operating under a trading name) for conflict searches
whether you want them to use a certain company precedent
contact details for the team and who they are authorized to take instructions from
your time scales (when should the advice/first draft/mark-up be provided?)
how you want them to estimate for the work (e.g., a fixed or capped budget for the whole matter or for only a phase?) and
any other advice, which will be kept internally or sourced from another firm (e.g., TUPE advice may be dealt with by HR)
Estimating for the work--your lawyer will need to know:
Managing the matter--your lawyer will need to know:
your standard position on contract negotiations (e.g. in relation to liability, payment terms, termination, etc.)
how involved you want to be in the matter (e.g. do you want to attend all meetings/conference calls, do you want to be copied into all correspondence or do you want them to simply get on with it and let you know when?)
where your sign-off will be required (e.g. does your lawyer have authority to agree liability provisions with instructions from your organization?
how regularly you want to be updated on fees (e.g. if you have agreed a fee range or have agreed to work on a time-spent basis, do you want a weekly fee report?)
if you or any members of the team have any big diary commitments (including holidays)
Invoicing process--your lawyer will need to know:
your invoicing process (e.g. do you require draft invoices before invoices are raised? Do you require a purchase order number?)
who authorizes invoices and
where to send invoices for payment
Finalizing the matter
It is important to inform your lawyer of any internal procedures which need to be completed before a contract can be finalized.
Your lawyer will need to know:
your signature policy (i.e., who can sign the contract on behalf of the company?)
whether there is a contract sign-off procedure (i.e., who needs to approve the final contract before it can be signed/does it require board approval?) and
whether you require a contract summary for the particular contract and if so, is there a format you use/prefer
The above points adopt a common sense approach. However, providing complete and accurate information to your external lawyers at the outset will save your business both time and money, which are key drivers in the current economic climate.
About the Author:
Dallas P. Verhagen is a business attorney and a partner at Verhagen | Bennett LLP. To learn more about Dallas, please click here.
For questions or comments about this post, please email Dallas directly at: Dallas@VerhagenBennett.com
To make suggestions about future posts, please email: Info@VerhagenBennett.com
© 2017 Dallas P. Verhagen — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.