Businesses need to be proactive in choosing vendors and drafting and finalizing contracts to protect themselves from expected and even far-fetched litigation risks. The risk of contracts leading to litigation may be the last thing on the minds of busy employees who are on deadline to get projects moving. However, businesses need to be mindful of avoiding unnecessary risk in writing contracts as well as monitoring the progress of these agreements.
Front-end or Back-end Investment
In drafting (or writing) contracts as well as negotiating contracts there are tradeoffs in how much time and effort the parties should expend in setting highly precise terms versus more generic or vague terms. While it may be easier to use more generic terms that can be applicable for multiple contracts, it is risky because those generic terms may lead to confusion and conflict between the two contracting parties.
To avoid litigation, it may be advantageous to put more time into negotiating and simply discussing terms up front to avoid confusion later between the two businesses. When parties use only vague terms they push issues into the back end which generally means that the disputes end up in litigation.
Businesses need to think long and hard about whether they are willing to take the potential risk of costly litigation in the event of contract litigation.
Litigation can be very time-consuming in addition to financially costly so business leaders need to take the overall inconvenience and risk of this into account when preparing contracts. So, investing in the front-end, while inconvenient and time-consuming, can more predictable than the risk, even if it is relatively unlikely, of litigation at some unknown time in the future.
Maintaining Good Records is Also Key
In addition, it is important to keep good records regarding business relationships and contracts. The contract itself with signed versions should be kept in a safe and accessible location whether that is in hard copy files or electronically.
Also, records showing invoices, payments made, and other relevant information about the contract are important to show whether or not your business, or the other party, is adhering to the terms of the contract. Even documents such as emails or notes from meetings between the two contracting parties can be helpful in determining what the parties actually meant in drafting contracts or how those obligations may have evolved over time. All of these records are potentially important in determining liability as well as damages.
Of course, keeping good business records is simply a good practice for all sorts of other reasons as well. Good business records are important for tax purposes as well as for monitoring revenue, costs, and the overall health of the business.
Contact a Knowledgeable Attorney Now for Guidance
In order to make sure that you are minimizing litigation risk and know exactly what you are getting into when you are negotiating a contract with another business partner, contact one of the knowledgeable lawyers at the Callagy Law firm.
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