Sunday, February 8, 2009

Contracts as Value Adding Business Tools

More often then not, people appear to view contracts as adversarial weapons rather than value adding business tools.  This is unfortunate.

Contracts can be a great tool for building business relationships and marketing, as well as risk management.  The key is communication and transparency.  In short, contracts provide parties a unique opportunity to discuss their respective expectations and interests to come to a mutually beneficial arrangement.  This allows the development of trust and loyalty between parties.  It also allows a business to distinguish itself from competitors.  The parties have to write out their understanding in a document a third-party will understand so that clarity and understanding are key to the accomplishment of the goals.  Finally, a contract encourages the parties to engage with each other and think about what is really important to them so they can work together. 

Contracts can also serve many purposes other than simply being a last resort document to force another party to do what a business wants.  A well reasoned and stated contract can be a source document for cooperation.  When a party knows it had the opportunity to negotiate, think about, and engage in the formation of the contract as a collaborative effort, the contract can provide guidance and clarity to the continuous interactions.  The parties can avoid costly management debacles, or wasted activities, because the contract is there to keep the parties on track.

Contracts can be marketing tools because they can provide prospective partners and businesses with an opportunity to become a part of the business’s operation.  A contract that is collaborative gives each party a stake in the success of the other side, not simply because they have to, but because they want to help each other in order to do more together than they coudl do apart.  Contracts can further reassure parties that they will be cared for, and to engage outside parties in a dialogue about the goals, vision, and hopes of the businesses.

But, perhaps most importantly, use of a contact as a value adding tool for a business, places the contract negotiation and activities in the broader context of the business’s greater mission.  A contract is not just about getting a deal with the best terms in a particular subset of the business’s operations.  It can be about promoting the goals and values of the business as a whole.

5 comments:

  1. This post is a breath of fresh air. Almost all contracts I've seen are just legal documents meant to protect you in court. The contract is signed and then sits in a filing cabinet. It's good to have legal protection, but that doesn't accomplish much.

    If a business really wants to set itself apart as honest and fair, the contract provides a great opportunity to establish this reputation. I've wondered if you could even include a sort of code of conduct and ethics outlining the general principles under which each party intends to do business.

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  2. Very nice write-up. Now to the hard part - convincing your colleagues that this is so.

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  3. Have you ever drafted a collaborative franchise contract?

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  4. Regarding Mr. Webster's question: Yes, my office has drafted some franchise agreements with a collaberative approach. We have also litigated franchise agreements which provides important insight into the drafting process for both sides of the agreement.

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  5. Douglas, what can you share about the franchise agreements which were drafted collaboratively? Can you tell us for which system it was done? Thanks.

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