Mere precedent is a dangerous source of authority in the world of contracts (with apologies to Andrew Jackson)

Many in the business world view contracts as merely a precedent -  a continually repurposed document applicable to any transaction that once signed is consigned to some drawer (or in the digital world some folder) never to be seen again unless a dispute occurs.  This is why so many businesses today rely on contract precedents sourced and downloaded from Google KC to record major business relationships.

Google KC precedent dependence can partly be attributed to complex, complicated and confusing contracts created over time by lawyers in an attempt to overcome legal risk that parties might encounter in commercial transactions. So busy were some legal minded beavers creating generic clauses in contracts to avert generic legal risk – that they forgot that the main purpose of a contract is to take into account the specific transaction between parties. At their worst contracts based purely in precedent are about as useful to parties as a serviette on which the basics of the deal has been written. Indeed in many instances the written serviette can be ten times more useful.

So how to avoid the contract as precedent trap? From my perspective when negotiating transactions it is important to think of a contract as an operations manual that if well drafted will record the specifics of the negotiated transaction in a manner that will provide clarity around:

1. the details of what has been agreed;

2. operational processes to be implemented to support the agreement;

3. avoiding and resolving disputes; and

4. ensuring a smooth termination of the agreement.     

By keeping these four points of clarity in mind, you will be able to best prepare for your contract negotiation by focusing on:

• the commercial imperatives surrounding the deal;

• how you will be able to work to achieve these imperatives practically by creating a working relationship with the other party; and

• ensuring that you consider up front what could impede the working relationship and how to avoid future disputes by ironing any foreseeable kinks up front with practical solutions which can be recorded in the contract.  

Follow the practical operations manual path and your negotiated contract will become a useful tool within which you can hopefully maintain a good commercial sustainable working relationship with the other party as opposed to some legal gobbledygook kept in a drawer with the hope that you never have to look at it again once signed.

As published in inside small business: Mere precedent is a dangerous source of authority in the world of contracts - Inside Small Business