Contract Negotiation And Writing Tips

Many businesses conduct transactions with nothing more than a handshake. Often it works out fine, but sometimes the parties misunderstand each other and end up in court, arguing about what they agreed to. So does that mean you should bring your attorney along every time you do a deal? Here are some suggestions on how to balance your need for smooth business dealings with your need to protect yourself in case of a dispute.

Some contracts must be in writing to be enforced.

Your state probably has a list of the kinds of contracts that must be in writing to be enforced. The statute that lists these kinds of contracts is referred to as the Statute of Frauds, a law that was originally designed to prevent fraud. While there is some variation among states, the types of contracts that must be in writing generally include:

• Contracts to buy or sell real estate.
• Contracts that will not be completely performed within a year.
• Contracts to buy or sell goods in excess of $500 (or whatever dollar amount your state sets as a minimum).
• Contracts to guarantee the debts of another person.

The Statute of Frauds does not mean that such contracts are illegal if they are not in writing, but it does mean that a court won’t listen to your case if you don’t have a written contract and the dispute involves one of these types of agreements. Example: You agree with a vendor that he will supply you materials for 18 months to complete a project. After 13 months, the vendor decides to stop supplying you, and you have trouble finishing the project. Without a written contract, you could not enforce that agreement.

When you think the deal is complete, put it in writing.

Reaching an agreement with another party is a matter of negotiation. A successful negotiation means being respectful of the other party’s needs and concerns. So when do you switch from negotiating to inking a deal? “When you have one person making a firm promise to another — or an exchange of promises — it’s time to put it in writing,” says Minneapolis attorney David Rocklin. Don’t be tempted to commit the agreement to writing at a later date. “The purpose of a written agreement in almost every case is to memorialize the deal,” says attorney Gregory Lang of Minnetonka, MN. “The problem with making the deal and memorializing it later is that the other person never seems to remember the deal the same way.” Be sure to get everything that you discussed on paper — what the price is, when delivery will be made, exactly what product or service is at issue, etc. It doesn’t have to be complicated — you just want to be sure you understand each other. Later, use your attorney to help you solidify the deal and anticipate issues you may not have considered.

Get a lawyer who understands your business.

Every business operates a little differently. Your contracts attorney should understand how your business operates. If you’re in the software business, you may think twice about hiring an attorney who mainly works with construction companies to draft your contracts. Instead, find an attorney who has some expertise in issues related to software agreements.

Consider using different attorneys for different parts of your business. Michael Minsberg, who runs a home lighting store in St. Paul, MN, has a lawyer who has been his general business management advisor for years. When he took part of his operations online and lined up outside investors to support it, he hired an attorney who specializes in venture capital issues to help execute the necessary contracts.

Don’t hide behind your attorney.

You want to be sure that the other side feels comfortable doing business with you. Don’t let your attorneys dominate your contract talks — both of you will feel better if your attorneys stay in the background. If your attorney uses language or describes conditions you don’t understand, chances are the other side doesn’t understand either. Insist that everyone use plain language, not jargon. Discuss the issues with your attorney beforehand, so you can explain what the contract is saying to the other business person.

Don’t cut costs when it comes to contracts.

A well-negotiated written contract can more than pay for itself on a single deal, and when used repeatedly its per transaction costs plummet. According to Rocklin, “To pay a lawyer a few hundred or a few thousand dollars could save you a lot of money and a lot of aggravation down the line.”

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