When do you want to have a contract?

IN THE EUPHORIA to get a "deal," vendors and contractors ( although contractors far more frequently) overlook the little details of exactly what terms they've agreed to, and when they've agreed to them. I understand that it is not often that a contractor or vendor finds itself in a bind over how (or whether) it entered a contract, but since it really doesn't take that much effort to do it right, why

IN THE EUPHORIA to get a "deal," vendors and contractors ( although contractors far more frequently) overlook the little details of exactly what terms they've agreed to, and when they've agreed to them. I understand that it is not often that a contractor or vendor finds itself in a bind over how (or whether) it entered a contract, but since it really doesn't take that much effort to do it right, why not avoid a potential problem altogether? After all, who needs the company's lawyer looking at him sarcastically, asking, "What were you thinking?" in front of the boss?

Whenever you have the opportunity to set the terms by preparing the contract, use it to set the terms that are best for your company. While this covers a lot of ground, just on the specific point of confirming what deal has been struck and when it is struck you can spare giant headaches later by being careful in your drafting.

Tip No. 1: Get it in writing. Oral contracts are almost always still enforceable, but since the only time it matters what you've agreed to is when the other side doesn't agree with your interpretation, it will then take an expensive and risky trial "by a jury of your peers" to determine what all the terms are.

Tip No. 2: Limit acceptance to your terms only. Manufacturers are way ahead of contractors in developing terms and conditions that limit their sales to only the terms that they set out. Since in about 100% of all cases, the manufacturer's warranty, insurance, indemnity, payment, damages for delay and other sticky clauses will fall short of what the contractor has been required to agree to with its customer, it is not in the buyer's interest to go along with those.

Tip No. 3: Make sure you know when you have a deal. One of the most frequent problems I deal with for clients is the situation in which the contractor has sent out a subcontract or a purchase order unsigned, with language that specifically says that there is no deal at all until it is signed and returned to the contractor, and then signed by the contractor. I get a call when the subcontract or purchase order has never come back, time has marched on, and now the buying contractor wants to force the sub/vendor to deliver. By creating a document that leaves acceptance so open-ended, the contractor set itself up for disaster. How much different a position it would be in, had its contract said, " This contract will be deemed accepted if subcontractor commences any work under it, including attendance at meetings or submission of shop drawings."

Tip No. 4: Know what the law will be if you don't reach an agreement on all terms. Sometimes, you just can't reach an agreement on a term, but both sides go forward anyway. In many instances, state law will insert a provision whether you know it or not. If the contract concerns the sale of goods, the Uniform Commercial Code will insert default provisions on warranties, time of delivery, even price. In many states, Prompt Payment and retainage acts provide that, if the parties haven't agreed otherwise, payment will be due in X days, and retainage will be limited to Y dollars.

It may be that a clause the other side is insisting on is unenforceable anyway (such as advance lien waivers, waiver of subrogation, broad indemnification), so you might as well fight like heck and then agree in exchange for something you really want. By knowing what the "default" agreement will be, you can better decide what's worth arguing about.

Tip No. 5: Give yourself an out. There are times when you have gone back and forth with the other side so many times you feel like a pingpong ball, and you get the feeling that it is only going to go downhill with this guy for the rest of the project. How do you cleanly get out of the offer? One way is to insert language in your document (form of subcontract, purchase order or order confirmation) that says, "This offer/ acknowledgment must be accepted according to its terms within 10 days or it is voidable at the option of offeror /vendor." This doesn't keep you from continuing to negotiate if you want to, but it gives you an exit if you reach the end of your rope.

The whole point is to increase your control over what you have agreed to, and let you know sooner rather than later if you have a deal you can live with. Life is too short and a project manager has too many other things to do to have negotiations with every vendor drag on indefinitely. Having a means of controlling when there is a contract or how to get out if you can't take negotiation any more will free up more of your time for getting the project built.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., telephone 816/421-4800 or e-mail to [email protected]

TAGS: Law