GOOD BONES: Strong Contracts Make Strong Companies
Hi all, the Duke here again, except I’m changing my title to Bishop. So technically the Bishop is here again with another contracts related post. Before we get into it, let’s get the disclaimer out of the way.
This is NOT legal advice and does NOT establish an attorney-client relationship between you, me, or the Troutman Firm. The following is only my opinion on the subject matter discussed.
Now, I’m sure all TCPAWorld readers are familiar with how a strong contract can potentially save you from being found vicariously liable for TCPA violations (see Here and Here). I’m also sure most denizens of TCPAWorld would agree that contracts are an integral part of their business. However, I would bet that many of you don’t fully understand why contracts are so integral.
Sadly, many people likely only view their contracts as a document that allows two parties to begin doing business with each other, which isn’t really accurate. Honestly, outside certain types of transactions, you don’t need a written contract to conduct business with another party. So, if you don’t necessarily need a written contract to conduct business in most instances, why are contracts so important? That’s because they provide structure to your business relationships by laying out rules and setting expectations.
To help drive this point home, imagine your business is a body. What departments your organs and muscles represent may vary depending on your business, but the one constant across all companies would be that your contracts are your bones. Your bones are the scaffolding upon which all your other parts rest. They provided structure and order to your body so that all the other parts can focus on what they do best. Simply put, without your bones you would just be an amorphous blob on the ground.
But now you’re probably wondering “how do I know if I have strong contracts?” Or maybe you’re incorrectly thinking “I spent $10k having X firm write my contract, so I know it’s perfect.” First and foremost, THERE IS NO SUCH THING AS A PERFECT CONTRACT! The sad reality is that no contract will ever be perfect because circumstances are always changing. Even if it were possible to write a contract that accounts for every scenario it would have the flaw of being too long. So how can you tell if your contracts are strong? The simplest way is to make sure they all start from a strong base. Have contract templates specially tailored to your organization and regularly reevaluate and update them. When creating or reevaluating these templates, here are some things you should consider:
Is my contract too long? It can be tempting to try and cover every possible scenario in your contract, but having overly broad contracts can have consequences. If you’re exploring a new business opportunity, the longer your contract is the longer the negotiation process is likely going to take. This can lead to unnecessary legal fees if one of the parties does not have in-house contracts counsel. It can be particularly aggravating for the other party if there are several irrelevant contractual provisions present. For instance, just because one party is a HIPAA Covered Entity does not mean the other party qualifies as a Business Associate, so is it necessary to include a BA agreement in your contract?
Is my contract too short? Opposite the above issue, some organizations aim to have short contracts the are quick read and signs. From a sales perspective, short contracts make a lot of sense because they reduce the hurdles before closing the deal. However, with short contracts you run the risk of leaving out incredibly important provisions that are necessary to protect your business. For a short contract to work you need to fully understand your business and its place in the industry in which it exists. Does your industry have issues of product ownership rights? How about data retention or privacy issues? Are there unique legal risks in your industry? These are the types of questions you need to ask if you want your contract to be short AND strong.
Is there too much legalese in my contract? Honestly, you should be able to read and understand your own contracts. If you can’t understand your contracts, then you can’t properly negotiate them. Sadly, this problem stems from the lawyer profession and isn’t your fault. For whatever reason, many lawyers still insist on using archaic language and overly complex sentences when drafting contracts. Plain and simple, if your contract has sections you can’t understand after a quick google search, then tell your lawyer to rewrite it in plain language.
Does my contract have sufficient scope? Remember how I said the purpose of contracts are to set rules and expectations? Well, if the scope of your contract is insufficient, then there is no way you’re properly setting rules and expectations. To be clear, the scope of your contract is the subject matter it covers. An example of insufficient scope in TCPAWorld would be engaging a new partner to purchase data leads, but the contract only discusses inbound calls. Always make sure the products/services you deal in are explicitly defined and discussed in your contract.
Wow, this post turned out longer than I originally intended, but I hope this encourages some of you to pay your contracts a little more attention. Oh, and before you ask, I’m already spoken for, so I can’t review your contracts for you.
Chris Deatherage contributed to this article.