Review your contract: trust

A few years ago, I was speaking to an audience at an RICS event and someone asked how he should proceed to write a contract if he didn’t trust ‘them’ (also known as ‘the other side’).

I was momentarily stunned into silence – a rare and unusual occurrence for me! My answer was simple:

If you don’t trust them, why are you entering into a contract with them? If you don’t trust them, don’t do business with them

Carefully reading your contract (including reading between the lines) can help you understand if you should trust your contract partner.

But stay alert to the fact that sometimes your instinct is a better judge of character and competence than your lawyer, your logical brain, your wallet or the contract terms. Those clients who seem like they are hard work before they sign, don’t get any easier after!

As Stephen Covey says

Trust is the highest form of human motivation. It brings out the very best in people.

Builds trust

A good contract will be emotionally intelligent and, through clear terms, will demonstrate a collaborative approach – not just to legal exposure but also managing changes and decisions during the project, creating a true win-win.

Typical clauses to look out for are:

  • mutual obligations eg on confidentiality, remedies, termination
  • a well-described scope so that everyone knows when all the goods, works and services have been provided to the right quality
  • clear aligned aims – so both contracting partners know what success looks like for the project and for each of them
  • fair payment terms enabling speedy payments and few deductions without reasons
  • clear allocation of the consequences of risk events – who is going to bear the knock-on effects of Brexit (for example)?
  • exclusion of liability for impossible requirements – any fitness for purpose obligation is tempered where the contract documents as a whole are inconsistent or impossible
  • limits on the provider’s liability, not related solely to their insurance.

See also my 8 Habits of Highly Defective Contracts.

Stokes mistrust

Various terms should put you on notice as a contract partner (and raise eyebrows of those of us who review contracts), such as:

  • rights to cancel (or terminate) for one party only
  • a right for one party to terminate without reason and without paying compensation for the other side’s lost profits
  • wide rights to omit goods, works or services – especially where the client allows itself to carry out those items or award them to a third party
  • unlimited liability for the partner providing goods, works or services
  • numerous conditions precedent, with unrealistic time limits for compliance, any of which could deny the one party of its usual rights and remedies
  • wide and lingering discretion on one party acting in the role of a ‘contract administrator‘ to decide on the rights and remedies of the other
  • indemnities – definitely to be avoided if they are not linked to breach of contract and just relate to losses arising from the goods, works or services.

What should you do?

Use this post to carry out your own trust audit of the contract or ask an experienced contract reviewer to provide you with a report so you can see what you should “snog, marry or avoid” (aka negotiate, agree to or run away from)!

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