Business Contract Agreement Advice
There are some common causes why negotiated deals fall flat. There are some constructive ways to firm up our hard won agreements.
Once upon a time, business people would seal a transaction with nothing more than a robust grasp of arms or a firm handshake. When the deal fell apart, they often settled the matter through a pain filled contest of weapons. Whoever was clubbed senseless or killed lost the argument. Years down the line, someone wiser, and probably less skilled with club or sword, decided there had to be a better way. And yes Virginia (in the U.S.of A ), is where lawyers originated, and aren’t we all happier as a result?
Today, we still make shaky agreements, or become prey to shady deals which fall apart for a multitude of reasons. Deals can collapse because of unexpected or untimely conditions which arise and are beyond our control. We cannot foretell the wrath of nature or an unexpected piece of legislation, or a sudden change in the commercial environment, for example. However, many negotiated deals fall apart simply due to our own woeful neglect. These are the agreements which could have been bound in concrete.
Business contract agreements can crumble for a variety of reasons. First, we’ll examine some of the more common causes then we’ll look at some constructive ways to firm up our hard won agreements.
7 Reasons Why Agreements Fall Apart
- Ongoing Obligations Become Too Complex (Frankenstein agreement) When a contractual negotiated agreement consists of too many complex obligations and stipulations, the more fragile its structure becomes. The reader becomes dizzy trying to sort out the tangle of fine print, vague language and nebulous terms. ‘Take reasonable steps’, or ‘unforeseen circumstances’ plague the agreement with ambiguities and potential loopholes.
- Buying the Business (Just how deep are your pockets?) Often time constraints, backroom pressure tactics and competitive market opportunities, cause negotiators to take a shorter term view and enter into agreements simply for the purpose of the agreement’s sake. This could result in issues that have not been satisfactorily resolved. Visualise a pressure cooker where somebody failed to turn off the heat and left the room.
- Buyer Beware – When you realize you have just bought a lemon. The agreement causes one of the parties to second guess themselves, or wonder whether they could and should have done better. They may feel they have been taken advantage of. It’s for this reason that the new glimmering contract may lead to profits being bled by your counterpart, extracting value from every nook and cranny they can find. A noble way of looking at it ,would be to say that the other side is ‘reclaiming their dignity’.
- That Was Yesterday ‘The best laid plans…’ or so they say. Changed or unforeseen circumstances can quickly turn an agreement on its ear. Many commercial transactions have a tendency to be drawn up in unclear language and may not therefore be legally enforceable. The validity of the agreement, may as a result not stand up in a court of law.
- Trust Me There are always people who lack scruples. Critical information may have been deliberately withheld, or misrepresented. There are numerous reasons why false or inadequate business intelligence can result in an agreement being declared void. We counsel clients on our negotiation skills seminars to never lie or misrepresent. Your reputation is too precious, and you don’t like it when others do this to you.
- Exhaustion – Lengthy business contract negotiations can lead to a hasty agreement when weary participants agree to wrap up talks. They may leave the details to be concluded amongst junior staffers which can sometimes lead to overzealous wrangling over less important issues or revisiting the main clauses. Often the intentions are either not captured accurately, or change as time marches relentlessly on wards.
- The State/Country ‘I Pledge allegiance to the flag’ (which one?) Most jurisdictions or countries have their own laws. Some agreements may require ratification by the state, particularly when the type of agreement has a bearing on existing pieces of legislated law. Alternatively,some countries may have a higher tolerance to one’s ability to influence the outcome or decisions than other countries. Political correctness asides, this means bribes, graft, and corruption. In other words, ‘Different strokes for different folks.’
Building a More Solid Foundation
Lets consider some curative remedies to shore up our hard won national and international business contract agreements. The thrust of negotiations should ideally result in our ability to craft a business contract which is durable and builds a lasting relationship. This dual approach will naturally stimulate a mutually fervent desire to heighten constructive performance of your agreement. Yes, just like what we remember from our honeymoon.
- No more one night stands – The corporate world is becoming wisely attuned to the positive benefits which might be achieved, in establishing binding relationships that are both sturdy and long term. By its mere nature, a long term relationship provides a compelling and powerful incentive to bring more to the table and work towards a mutual benefit. Disputes may ultimately be resolved in a more cordial manner when both parties have more at stake in maintaining a mutually beneficial shared future.
- Communicate – Your communication determines your business relationship’s results. Get this right first and only then carve your business contract in stone. Clarify and spell out how you will handle future misunderstandings by creating dispute resolution clauses. By deciding how you will handle the bumps in the road later, your road ahead is likely to offer a far smoother journey. Many negotiation experts go so far as to argue that a negotiation process should be agreed upon before looking into the meat of the agreement.
- Follow the crowd – Drafting your agreement in accordance to industry standards,or accepted norms, will set the bar at a mutually agreed height.
- Break ups – Despite best intentions, both people and businesses can end up in divorce. Prepare for the possibility that the relationship could fall apart. Don’t be left holding the bag because you failed to court some other potential partner, waiting in the wings. This includes developing a list of alternative partners that meet your needs. Remember your BATNA! Alexander the Great went so far as to advocate,that the preparation for a retreat is one of the 3 crucial elements of attacking strategy, before setting foot on the battlefield.
- Cover your derrière – Insure yourself against non-performance by the other party through intelligent risk management. Consider mutual contingency plans to counter the unexpected. More importantly, it would be smart to develop your own preparations as a back up plan. A common error is not including self enforcing clauses for a potential default of goods or services. Keep in mind that, ‘An ounce of prevention is worth a pound of cure.’
- Clear as mud – Everybody hates fine print contracts (excluding perhaps most commercial contract lawyers). Use an expert to draw up a contract that you can understand, especially for more complicated and multiple obligation agreements. Each parties expectations should be plainly spelt out. Agreements have to be clear and concise to be workable. Weed out vague or muddled terminology that may end in slippery loopholes or trap doors.
- Celebrate, have a party! After both parties have signed on the dotted line, enhance your new found relationship by publicizing the union; break bread together at a social gathering; or give gifts to your new partners (provided that giving gifts do not fall foul of one of your company’s internal regulations). These acts emphasize and solidify the relationship, while placating any ruffled feathers that might be lingering after the deal is signed.
Good old human touch and care, should not be underestimated in today’s hectic increasingly computerised age of doing business. Take a cautionary lesson from the medical profession. A study has discovered that patients who sued their surgeons, based their decision not on the quality of their handiwork, but on how they were treated in the consultations before a scalpel was ever lifted. Another study found that surgeons were able to dramatically reduce their chances of a client prosecuting, by saying two simple words: “I’m sorry”.
Think beyond the agreement. Both parties want commitment, performance, and durability. A wise agreement should reflect these attitudes in order to be successful. A well written business contract agreement is the sand which binds the cement and makes the foundation strong.