Tuesday, April 17th, 2012
If you have a small business and you are presented with a “non-negotiable” contract, what can you do to protect yourself?
I got thinking about this because of my own position as a small businessman. I negotiate technology contracts (such as software licenses) for a living, yet, because of our law firm’s small size, the copier vendor and the phone/internet service provider refused to negotiate legal terms with my business.
So what can you do about take-it-or-leave it business contracts? Here are some tips:
1. Consumer contracts are different. They often benefit from laws that protect consumers but don’t apply in business situations.
2. Make certain you want to do business with the vendor. Check its reputation. Get a no-obligation trial. The vendor’s form contract probably gives it lots of power to jerk you around, so you’ll be somewhat vulnerable.
3. Avoid signing a contract with a vendor in financial distress. It might be inclined later to take advantage of unfair terms.
4. Ask the vendor for a copy of its standard contract when you first make contact. You might discover a major issue early while you still have time to switch.
5. Read the whole agreement. Does it CLEARLY state everything the salesman promised? Don’t accept unwritten or side promises. Your attitude should be that, if it’s not in the contract, it’s not in the deal. Many salesmen don’t put much effort into fleshing out the business terms in writing, so you will have to push for detail and clarity.
6. Read the legal terms (the fine print) and assume the vendor can do everything that the terms allow. Are you sure you want to live with that? Make your evaluation of the legal terms part of your evaluation of the overall value proposition.
7. At the beginning of your interaction with the vendor ask whether its contract is negotiable. A vendor might be unwilling to negotiate when it senses the deal is in the bag but might be willing if many vendors are contending.
8. Try to keep at least two potential vendors in the game as long as possible so you can pick the one who treats you better on legal terms and so you can play one off against the other regarding negotiability.
9. When you spot “non-negotiable” terms you dislike, make the salesman your agent. Tell the salesman “I don’t like provision X and don’t want to sign an agreement with X in it, so what can you do to fix this?” Then be patient.
10. Try marking up the contract anyway. Initial and date any changes you make, then sign and date the contract. Even if the vendor says the contract is non-negotiable, sometimes it won’t catch or reject the edits you make. Keep a copy of what you marked up so you can prove it later.
11. Sometimes a vendor won’t accept modifications to the text of its standard-form agreement but will accept a few modifications stated in a custom-written addendum.
12. Avoid signing the contract in your individual capacity, and avoid signing personal guarantees. You want the potential ability to walk away from obligations under the contract if your business fails. Make certain your corporate entity (your corporation or LLC) is the party to the agreement. Use the full company name, including the “Inc.” or “LLC.” Include your title in the signature, such as “president” or “managing member.”
13. Find all of the deadlines in the agreement and put them in your reminders calendar. For example, many agreements contain an “evergreen” clause, which automatically renews the agreement unless you give notice of termination within a specific timeframe.
14. Get and keep a copy of the fully signed agreement – one with your signature and the vendor’s. Sometimes the deadlines are based upon when the agreement has been signed by both parties. The vendor usually signs last, and you may need that date to set up your reminders.
15. If you must sign the contract online, print and save a copy of what you signed. The contract might change, and the version you sign might be more favorable to you than whatever comes next. (Unfortunately, some contracts preserve the ability for the vendor to make contract changes unilaterally.)
None of this gets into what legal terms to watch for and to negotiate. That depends on your particular situation and usually requires legal assistance.
Go get’em!by John B. Farmer
Published in the Richmond Times-Dispatch
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