Effective Agreements Have These 3 Things in Common
Effective Business Contracts Have 3 Things in Common
This is not comprehensive list. However, with a company name such as "Effective Agreements," musing on what elements result in an effective business contract is a must. Ten points on negotiating a simple sales agreements can be downloaded from here. That material is more of a “how to” while this is a slightly broader approach.
The Purpose of the Contract
An effective contract should serve the purpose that was intended. That sounds almost simplistic, but, there are two things to remember:
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Many contracts fail their intended purpose because they are not created and/or reviewed by someone with the experience to ascertain if the document says what the party thinks it negotiated, and if it negotiated the points necessary to make the arrangement viable.
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Remember the corollary: the contract should not do things that were not intended. This blog had a recent post about a Nondisclosure Agreement that made a grab for the other party's intellectual property that serves as a good example of this risk.
Win-Win Agreement or Not
A contract should probably be a win-win. This “common knowledge” is true enough if the companies have equal power at the negotiating table. A small company doing a major transaction with a much larger one is likely to end up swallowing hard and accepting a number of non-optimal terms. Examples would include:
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Extended payment terms, potentially delayed until an acceptance test is performed successfully;
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An expensive and difficult to maintain software escrow;
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An extended warranty period;
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More stringent maintenance requirements.
Terms and Conditions Clarity
The document should be drafted in a way that the business people on each side can easily determine the actual terms and conditions in effect, without the need for translation. It is the
business people who will have to live with and implement the day-to-day provisions of the contract.
Alternatively, if the business people work together from an outline to determine the terms and conditions, without haggling over wording, and then have the drafting performed by someone skilled in the art, they will understand the business terms completely.
The Rosetta Stone - Translating to the extreme >