Do Your Contracts Matter?

Do contracts matter? My instinctive response is, Of course they matter! But whether that's actually so depends on several factors.

Do you have competition? If so, your contracts might be a factor that your prospective customers weigh in deciding whether to give you their business. Do your contracts express the deal in a way that makes sense? Do they strike an appropriate compromise in managing risk? How clear are they? But if your customers are desperate to have what you're selling, either because it's uniquely compelling or because market dysfunction (for example, corruption) offers you a unique advantage, then you could conceivably give them any old contract.

Are you subject to the rule of law? If a transaction is subject to a legal system that offers basic integrity, you or your counterparty can expect that if you get into a dispute, the dispute-resolution process would meet minimum standards of fairness. In any such process, contracts matter, down to the level of commas and ands and ors. But if fairness is an illusion and the process is rigged, contracts are just for show. Or perhaps your business is such that you always settle your disputes, in which case the rule-setting function of your contracts is less significant.

Are your transactions complicated? Once a transaction reaches a certain level of complexity, the parties would likely appreciate it if their contract were to lay out a roadmap for what each side expects, whether or not dispute resolution is a meaningful prospect.

What's at stake? The greater the value of a transaction, the more attention the parties are likely to pay to the contract.

So based on these factors, you decide how important your contracts are and what resources you allocate to creating and maintaining templates. The more important the contract, the more likely it is that it makes sense to enlist suitable expertise.

I suspect you could point to other factors.