Businesses enter into many contracts both to buy and to sell goods and services. Many of the purchase contracts are routine and of too low a value to justify the involvement of a lawyer. If a contract must be entered into on the other side’s terms and no amendment is possible, it may not be useful to pay to be told what is wrong with it (although there may then be issues as to enforceability of its terms which you would need a lawyer to advise on). There will be, however, purchase contracts which are of significant value and may actually be open for some negotiation to win an order. These need to be considered on a risk basis and a lawyer consulted.
For sales, “standard terms” that you provide to all your customers also need to be considered in the context of risk. The chances are that if they are used for all transactions then a fundamental error repeated in numerous small transactions could be serious for your business so it’s important to get these right at the outset.
This is particularly the case in relation to the regulations applying to consumer transactions which give various rights and may make provisions unenforceable. This is a particular risk if a business is relying on terms to limit its liability. Copying the standard terms of a competitor is unwise. Although they may be compatible with the way the business operates, they may be wrong or out of date or it may be a breach of copyright leading to reputational damage or even litigation. If anyone notices, it makes a business look highly unprofessional and slapdash.
For larger one-off contracts, particularly those prepared by the other party’s in-house or external lawyers, advice is essential. This need not involve the handing over of negotiation of the terms to a lawyer (although that may be the right thing to do) but it does mean being sure that traps or departures from the deal actually agreed are spotted. Often IT procurement is one of the largest purchase contracts for a business.
A properly drawn contract is the best way of reducing the chance of a dispute because it leaves less room for the parties to understand it differently. A dispute may not only cost a business money and time but may also destroy a valuable customer relationship.
The best way to avoid expensive disputes is to anticipate what might cause a dispute. Spending some money early, on expert legal advice, could mitigate this risk and end up as (a relatively small amount of) money well spent.
A good contract may give the business the position to deflect a dispute before it escalates. If that is not possible it is essential, if the amount at stake is significant, to get advice before you entrench your position and the dispute in communications. You may be undermining your case without realising it.
If litigation cannot be avoided, a clear plan and strategy from the outset is important. The business needs a lawyer who is looking for a speedy and good outcome because the longer the litigation goes on, the more it will cost (not only in terms of money but also in terms of time spent away from running the business) and the harder it will be to resolve. Toughness has to be tempered with tactics. Litigation is not a process with an intrinsic value - it is the outcome that matters.
Too few businesses are systematic in their approach to legal spend. Many businesses tend to be reactive and only consult lawyers as a last resort. This usually means that when a legal problem arises they will either do their best to resolve it without help or hope it goes away. Directors may consult family, friends or contacts informally, hoping to rely on their experience or received wisdom.
This is not a completely irrational approach because many legal problems may well resolve themselves, one way or another or do not involve enough money to justify legal fees.
There are, however, two problems with this approach. First, some problems are not benign and unless dealt with at the earliest possible stage will grow and become more complicated. The bigger it becomes, the more costly it will be in time and resource to resolve. For these problems an early steer from a lawyer will represent good value. Secondly, a reactive approach doesn’t provide an opportunity to use a lawyer to help a business manage its legal risks before problems arise. A proactive approach to risk means that a legal budget can be used in ways in which it is likely to add the most value to the business.
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