Pay attention and avoid costly contract mistakes.
CONTRACTS generally have the same sort of effect on people as double Latin used to have on me at school - a dragging feeling of despair in the pit of the stomach and a lot of words that even when you try, you just don't understand.
The trouble is that you can't do business without contracts. They are at the centre of any sort of commercial activity.
Larger businesses can insist that their own standard terms and conditions are used and can afford to employ contract managers to read and negotiate the small print. But many small businesses are not in a position to insist that their terms and conditions be used or to afford dedicated staff. These businesses might never learn to love contracts, but they do need to learn not to be frightened of them.
Here are my top tips for getting to grips with contracts: 1. Read them! This is stating the obvious but I have advised on many disputes where a business has signed a contract that they only skim read. Block out a couple of hours and read through them. If you work on screen, track changes or add comments to help you think. If you prefer pen and paper, take a copy of the contract and make notes in the margin. The more contracts you have to read, the better you will get at this. 2. Don't be afraid to ask if you don't understand something Businesses, particularly new ones, are often reluctant to let on when clauses don't make sense to them, for fear of seeming naive.
Don't worry about that - better to show inexperience now before you sign, rather than afterwards if things go wrong. If you want to seem less naive, phrase your question in a certain way. My favourite is "What are you trying to protect against in this clause?" 3. Remember that sometimes contracts read like gobbledygook because that's precisely what they are Businesses cobble together contracts from things they find online. The internet does not always have the right answer.
My particular favourite is when businesses leave in references to the company from whom they ripped off the contract.
4. Watch out for traps Some standard terms and conditions contain nasty surprises.
These are usually the ones printed in tiny, difficult to read print and where salespeople stand over you so that you sign in a rush and they get commission. Don't let them rush you. Take the contract away and follow point 1 above.
Common traps include saying you can terminate on a month's notice but actually the contract provides that notice can only be given to expire on the anniversary of a contract and if not given on that precise date the contract rolls over for another year or more; and supply contracts which include a personal guarantee for payment from the person signing or an additional maintenance or service contract that was not discussed during negotiations.
5. Remember that contracts may have a lot of words in them but their purpose is fundamentally the following: Who is going to do what and when for what price? What level of service or standard of product will be supplied? How can the contract be terminated? On notice usually or immediately for breaching important terms. Who is liable when things go wrong and for how much? Think about the answers to these questions before you tackle reading the contract.
6. If you can afford it, take legal advice If you've followed the advice in this column you will have reduced the amount of work your lawyer has to do and you will be able to define the areas where you need help. This should reduce cost.
Bethan Darwin is a partner with law firm Thompson Darwin
If you suspect that contract is gobbledygook, then it just might be, warns Bethan Darwin