Best Practices for a Better Contract
Tips for effective contract management in New YorkBy David Levine | Reviewed by Canaan Suitt, J.D. | Last updated on October 11, 2023 Featuring practical insights from contributing attorneys Daniel B. Faizakoff, Alexander D. Tuttle and Steven L. Levitt
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Daniel B. Faizakoff, an estate planning & probate attorney in New York City, quotes the legal axiom, “Once you begin litigation, you’ve lost”,” in relation to a client who created a web-development business 16 years ago.
“My guy did all the work, and the others were passive investors. He was giving away 40 percent of the profits and wasn’t happy,” Faizakoff says. Unfortunately, in the original contract, there were no defined parameters for how to withdraw from the company. “Instead of a 30-page operating agreement to specify his rights and obligations, this is two-and-a-half pages that says almost nothing—it says just enough to be dangerous.”
Now the only way out is through litigation, which, Faizakoff says, “costs time, money, anxiety, it can go on for years, and you may not get the answer you want. Even if you do, you can’t get back the time. And often the money.”
Five Tips for an Effective Contract Management Process
A good contract is the cornerstone of a successful business, and contract creation also looks to the future.
“As a lawyer, I am in the business of ‘what if,’” Faizakoff says. “I look at business terms and provisions and try to figure out how things can go wrong. I can’t prevent things from going wrong, but a good lawyer looks at what could go wrong and figures out ways to deal with them now in the agreement.”
Every contract is unique, of course, but all good ones follow some basic practices in contract management.
1. Use Plain English in the Contract Language
Legalese only adds clutter and confusion.
“You need to understand what each provision really means in the context of how it could be litigated,” says Alexander Tuttle, a business attorney at Tuttle Yick in Midtown, about contract terms.
Faizakoff agrees. “It has to be understandable not just by the parties but also by the court or a third-party arbitrator who doesn’t know the parties and what the deal is. If you understand it but somebody else doesn’t, you will never get your rights enforced.”
2. Pay Attention to Contract Risk Management and Know Which Side You’re On
“Is it more likely you will want to enforce the agreement or want to get out of the agreement?” asks Steven L. Levitt, a business litigation attorney in Mineola about contract negotiation.
“Most people look at contracts as neutral, but they are challenging because you potentially need to put in an out clause to protect your client—and that clause will have to be hidden, so to speak, in plain sight. You also have to anticipate how the [other side’s legal team] might try to get out of the contract and put in language to protect against that.”
3. Manage Expectations in the Contract Creation Process
Some clients think contractual obligations are “supposed to make a person do a specific thing, when it’s rare you can actually force someone to do something,” Levitt says.
What should be in the contract, though, is how you get compensated when the other side does the thing you don’t want them to do. “Make sure they realize the remedies in the contract are at least as important as the contract provisions,” he says.
4. Understand The True Force of Force Majeure
Force majeure is a standard contract clause that protects stakeholders from uncontrollable events—such as war or natural disasters—that interfere with normal business practice.
For obvious reasons, it’s been much talked about in the COVID-19 era, Faizakoff says, “We are adding more specifics—like what ‘an act of god’ actually consists of.”
5. Confirm Everything
Writing contracts isn’t rocket science, Tuttle says about contract management best practices, but you do have to make sure everything you agreed upon and want covered is covered in the contract approval process. “Contracts mean something,” he says, “so take them seriously.”
Find an Attorney for Help with Your Contracts
If you’re a business owner or entrepreneur entering a contract, consider reaching out to an attorney or legal team with experience crafting contracts in your industry.
Even if you plan to use a template, it’s best to have a lawyer conduct a contract review and make potential edits to standard clauses to ensure they match your specific needs. The bottom line is that you want to make sure everything is sound so as to avoid, as much as possible, disputes in your business relationships down the road. Advance planning can result in time and cost savings. Some attorneys will offer flat fees for contract work, while others will work on other pricing arrangements.
For more information about this legal area, see our overview of contract law and related content.
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