Don’t Overlook the Basics — Minimizing Litigation Risk in Commercial Deals

Business relationships are driven by a business’s agreements, both with customers and with suppliers. Over the years, I have come to recognize issues that arise again and again that, if addressed at the outset, would have saved businesses from the headaches, stress, and expense of a lawsuit later on. While you can never totally eliminate litigation risks, developing and implementing a good program to minimize those risks will more than pay for itself over time. Here are ten seemingly obvious yet often overlooked fundamentals that will help avoid some of the most frequent issues that arise.

1. The Devil Is in the Details – Get It in Writing. Even the most sophisticated companies get into protracted contract disputes, simply because they did not translate the terms of their agreement to a clear, binding contract. While in an ideal world one’s “word” would be sufficient, sealing any portion of the deal with a mere verbal agreement will not protect you from the time, headache and expense of the legal dispute down the road.
2. Address Your Priorities Within the Contract. Often times, the agreement itself is not the source of adversity but rather the length of the terms. Nobody wants a LONG agreement. Lawyers, on the other hand, will encourage an agreement that covers any possible contingency, no matter the length. The best solution usually lies somewhere in between. Use your experience to identify the recurring issues in your industry, and work with your lawyer to include contract provisions tailored to address those issues.
3. Seal the Deal in Ink. A lot of contract disputes deal with deceptively basic questions: Is there a contract? If so, is it binding? People are always surprised at how much arguing can be spent on that issue alone. One great way to guard against this issue is also one of the simplest: get the contract signed.
4. Include an “Integration Clause.” Integration clauses say that the writing in question is the full expression of the agreement between the parties. In other words, if a dispute arises, one of the parties would not be able to claim that an email that it got two weeks before the contract was signed is actually part of the contract.
5. Address the “Battle of the Forms.” When you have quotes and purchase orders going back and forth, each with their own terms and conditions, it’s easy to lose track of which terms control the parties’ relationship. Your lawyer will be able to guide you as to the best language to include in your contract to make sure that the deals you make are actually on your terms.
6. Protect Yourself. Include provisions to protect your business. Set forth clear indemnification, warranty, and insurance requirements. Decide the scope of protection you need to have that allows you to do business, while maintaining an acceptable level of risk if things go bad.
7. Learn From the Process. Develop a system for substantive feedback on deals from your team, to keep track of what worked well and what did not. When an issue arises, discuss it with your sales team, and talk about what can be done better the next time. If you have to seek legal advice, talk to your lawyer about how to change your processes to guard against the same issues arising in the future.
8. Update Your Forms and Practices. The law changes and your business evolves over time. Your forms and practices should change as well. You may have a great program that protected your company from risk in the 1990’s, but the world is far different now. Regularly review your practices and your terms and conditions with your team and your lawyer so that any new challenges or developments can be addressed.
9. Be Disciplined, and Make Sure Your Salespeople and Buyers Are Onboard. Development of a protocol is one thing, implementation is another. Communication and consistency are key; make sure everyone on your team who comes into contact with a customer or supplier is up to date on the latest policies.
10. Review the Big and Unusual Deals With Your Attorney. Not every quote you give or purchase order you issue needs to be run by your attorney—that is why you developed a comprehensive program of forms and practices. But, there are times that merit slowing down and really LOOKING at a deal before pulling the trigger. At that point, pick up the phone and call your legal counsel. He or she should know your business well enough to be able to tell you whether your standard forms will be sufficient to cover your needs, or whether the deal requires something more customized.