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Five Tips Before Signing a Contract

June 10, 2015 Davis Law Group

Many business owners sign contracts without thinking twice. They order supplies, contract. They hire a subcontractor, contract. They lease a vehicle, contract. They provide a service, contract. They rent office space, contract.

Contracts are taken for granted every day, and business owners frequently underestimate the ramifications of the documents that they sign. Why? Because typically the business owner has never had an issue arise with these contracts because they’re surrounded by like-minded partners, vendors and suppliers. But what happens when the like-minded partner, vendor or supplier differs in opinion from the business owner and the generally agreeable mindset evaporates? The relationship then becomes dictated by the contract that was signed months or years ago. The business owner panics and scrambles to find every document that she signed. Don’t allow this to happen to you.  Protect your business and take a step back before signing a contract.

Here are five tips to consider before signing a contract:

  1. Evaluate the person on the other end.  By signing a contract you are making a commitment to the other party.  Do your research.  Investigate the other person or company.  What is their reputation around the community?  How long have they been in business?  Can you trust them?  Trust is the centerpiece of a good business relationship, make sure the person on the other end of that contract has earned yours.
  2. Do not assume the contract is non-negotiable.  There are very few contracts that cannot be negotiated.  You may think the other party sent you a document that is engraved in stone.  However, 9 times out of 10 you can negotiate certain terms.  If you want something removed or added, speak up!
  3. What’s missing?  Most contract issues arise because of terms missing from the contract.  Is there a provision that allows you to recover attorney’s fees in the event of litigation?  Are there ways for you to back out if certain events occur?  You should focus on what provisions are missing as much as the provisions that are already written. This is where it may help to seek professional advice.  An experienced business attorney can identify missing provisions that should be added for your protection.
  4. Do not begin the relationship before you have a signed agreement.  The business world moves quick and business owners frequently jump in head first before signing anything.  Do not assume that everything discussed will end up in a perfect agreement.  Do not rely on verbal commitments or guarantees.  Slow down and take a step back.  Get everything into writing before you take the plunge into this new business relationship.  Also, make sure the contract properly identifies the other party.  Are they signing individually or on behalf of their company?  Are they authorized to sign on behalf of their company?  Do you have every signature that you need?
  5. How and where are disputes resolved?  Many contracts require mediation or arbitration.  Although mediation or arbitration can be effective, it can also be very expensive.  It is frequently less expensive to go to court than it is to go to arbitration.  Many large companies add arbitration provisions as a tactic because arbitration may be too costly for you to pursue.  Additionally, make sure you take a look at the jurisdiction identified in the contract.  If you are a Chesapeake business, wouldn’t you want to resolve a dispute in a Chesapeake court?  Many contracts contain a jurisdictional provision that identifies a City/County and State where all disputes must be resolved.  For example, if you are working with a business in California, it may require that you use California courts to resolve your dispute.  This would be costly and time consuming.

Contracts are necessary business transactions, but you want to make sure that each one you sign protects you and your business and that you understand all of its terms. A trusted business attorney can ensure that each one you sign protects, rather than endangers, your business.