Editor’s Note: This is an edited version of an outstanding article from a website called AllBusiness.com that sets out the 6 mistakes that small businesses commonly make when negotiating and drafting contracts. I don’t know very much about AllBusiness.com other than the fact that it has an outstanding website that I heartily recommend you visit if you need help managing the business aspects of your position. What follows are their words with my edits.

1. Not Volunteering to Write the First Draft

Writing the first draft of the contract gives you a tremendous advantage in negotiations because it enables you to structure the deal on your own terms. Once the fundamental terms are set down, it becomes a matter of adjustment.

2. Not Including Explicit Payment Terms

Payment terms are an essential part of the agreement and shouldn’t be omitted pending resolution of all of the other terms. Draft terms of payment that clearly state the amount owed as either a precise figure or the product of an understandable formula. Account for taxes and address the consequences of late payments and failures to pay.

3. Not Including All Deal Terms in the Agreement

Include all "deal terms" in the agreement such as the reason for entering into the agreement, what each party agrees to do, the conditions that must be met for duties to arise and any critical deadlines, etc.

4. Making Assumptions

Specifically spell out all the obligations and assumptions in the actual agreement. For example, don't assume the other party will know that you’ll lose thousands of dollars if you receive the goods late. Instead, put a time is of the essence clause into the agreement.

5. Not Paying Attention to Boilerplate

Boilerplate terms are an essential part of any contract and are subject to negotiation, including terms addressing issues such as:

• Whether the prevailing party in a dispute will be awarded attorney's fees;
• How the agreement can be amended; and
• The right of each party to assign its rights and obligations under the contract to a third party.

6. Treating Key Terms as Non-Negotiable

Everything is negotiable, including the terms the other party tells you are not negotiable. Of course, you don’t want to negotiate every single provision. You need to choose your spots. But if a term is important to you, don’t hesitate to negotiate it—even if the term is part of a preprinted form.

Source: AllBusiness.com, Inc., http://smallbusiness.yahoo.com/r-article-a-1401-m-1-sc-11-top_10_contract_drafting_mistakes-i

Story Tools:  Email This Post  Print This Post Top