8 habits of highly defective contracts

Stephen R Covey’s 7 Habits are principles to help you become highly effective. There are astonishing parallels with my specialist area of law – contracts.

In brief, the first six of the 7 habits can be summarised as ‘make and keep a promise’ and ‘involve others and work out a solution together‘. Those two aspects alone are rare within the UK construction industry…

My experience is that most businesses fall into the 8 habits of highly defective contracts. They make promises they don’t intend to keep, and they don’t solve their problems with their clients but through lawyers.  Of course, if you want to create effective contracts, you just have to do the opposite of these habits:

1 Use Contracts Lazily

As a contract is a tool to help you do business, why do most businesses get embarrassed about their contracts and treat them like a hurdle to be overcome? Why copy them from the internet, or hide them in a drawer? Effective contracts help you sell your business, your products/services, your skills, and your passion to those who need them.

Tip: Be proactive with your contracts and create contracts that work for your business.

2 Begin with a Bad End in Mind

Many terms in defective contracts focus solely on what will happen when things go wrong – how disputes will be resolved, complaints handled, liability limited, or risks insured. Of course your business needs protection, but the best protection is to begin by knowing what a successful project looks like.  Unclear expectations about what success looks like will result in disputes.

Tip: Use your contract to define what a successful ‘end’ looks like for you and your client.

3 Put First Things Last

Defective contracts focus 80% of their content on the minutiae of transactions – definitions, addresses, notices and so on – rather than spending 80% of their content on the important things. What your client really wants to know is what you are doing, why, how, when and for how much money. If your client can’t read your contact and understand it within seconds, then your focus is wrong.

Tip: Start your contract with the most important aspects for your client.

4 Think Win/Lose

For the last 150 years, the English courts have intervened in contracts to redress the balance when merchants started to take advantage of naïve consumers. Regrettably, this is still happening today. Defective contracts read like the instructions for winning a battle, not the map for a journey to be travelled together. But collaboration and trust is the key to successful contracting.

Tip: For each clause, decide if it builds trust or breaks trust. You should aim for 95% trust building.

5 Seek Misunderstanding

Too many contracts are excessively long and irredeemably complex. They are written by (or copied off) lawyers to be read by lawyers (or misread by non-lawyers). If your contract cannot be understood then it cannot be effective as no-one can carry it out. You need to see your contract through your client’s eyes.

Tip: Write your contract in plain language to avoid misunderstandings.

6 Silo-ize

Defective contracts assume that there are ‘sides’ and each ‘side’ has to protect its own interests. Effective contracts combine the strengths of both sides to produce an even better result. They involve clients in deciding the solution to their own problem, rather than imposing your ideas.

Tip: Treat your contract as a partnership for a project and work as a team to achieve agreed aims.

Defective contracts seek short-term profits at the expense of long-term relationships. They stoke mistrust, create conflict and are unsustainable. An effective contract grows with the partners and the project, encouraging them to share ideas and improve the project for both their benefit.

Tip: Focus on results not the methods as this provides room for improvement as you learn.

8 Shout About You

Those who enter into, seek and enforce contracts for their own selfish aims are not clients you should do business with. Their defective contracts do not help you, they merely help your ‘partner’. But contracts are, and should be, about inspiring and helping each other. What people say about you (your brand) depends not just on how you write your contract, but how you use it.

Tip: Treat your contract as a way to inspire or help someone else.

As the book says “Trust is the highest form of human motivation. It brings out the very best in people.” That is why an effective contract is about trust, not terms.

You can get a visual version of this on slideshare. This blog first appeared on Charon QC.

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