Common Errors in Contract Drafting and Negotiations

As previously blogged, contracts are ubiquitous.  However, many people are unfamiliar with the process of creating a contract, and gloss over it during the contract formation stage.  This often leads to mistakes and oversights that could later costs thousands (or millions) of dollars.

Here are some common mistakes:

1. Failing to Describe the Duties of the Parties.  Parties have a general idea of what the “exchange” is, but often, they fail to specifically articulate it in the contract.  The duties and responsibilities of each party must be explicitly stated.  I can’t tell you how many times I’ve seen generic words like “consulting services,” and nothing else.  By going into great detail in figuring out what each party must do and putting it in writing, you are more likely to discuss, during the negotiations phase, any contingencies that may occur, and prevent problems later on.
   For many contracts, it is absolutely essential to clarify material specification.  The parties should always specific exactly what each party should do at what time and when.  The contracts should describe with great specificity the products and materials involved, rather than using generic terms that cause ambiguity later.  Accordingly, many “definitions” may be needed.
2. Not Hiring an Attorney. While some contracts are simple enough for you to figure out amongst yourselves, others are not.  In fact, if you have a valuable idea or you are selling a very valuable piece of equipment, it is highly recommended you speak to an attorney.  Many times, people think the “concept” of a contract is so simple that they feel like they can do it themselves, while other times small business may avoid using an attorney to save money.  The line may be hard to draw, but if something is risky or involves a large amount of money, I would highly recommend an attorney.
3. Letting the Other Side Draft the Document. Letting the other side do all the work may save you time and money, but you may pay a hefty price much later.  This is especially true if you don’t seek legal counsel yourself.  Many attorneys have also noted that when the other side drafts the documents, they then have to comb through it very carefully anyways and add provisions.  This process may actually be more costly and time consuming.
4. Neglecting the Other Parts of the Contracts.  Sometimes, the parties involved merely focus on the exchange, but fail to address what happens should a dispute arise.  It is important to figure out early on how to handle the situation should one party not pay, or the other party fails to deliver the agreed upon goods or services.  The parties should also plan for a proper term or end date for the contract, with alternative routes for resolution.