What is a good contract?

Did you ever had a thought on ?what actually is a good contract?” what it means? – a good contract?

It is a contract, that once being signed and stored (on shelf, in a dower or on a hard drive) it is never polled out anymore.

I am an expert on negotiations, contract negotiations and contract management, with experience in that matter reaching back to 2003; and here’s my support for the statement above.

First comes first – what is the contract needed for? What is the purpose?

Now, I have heard so many answers to these questions over the years, and most of them proves that they who were giving me those answer don’t really know the subject matter of contract purpose.

The good contract is not the one who gives us the best profit! It is not the one that gives us all the power we could possibly possess over the opponent (obviously you can’t call them “partner” any longer now…). I won’t enumerate all the ideas I have heard… I will concentrate on the purpose itself and the process – how it should look like:

First – and most importantly! – we need to establish whenever we actually need one! How to do that? We need to:

1. Do the internal homework: what are our limits for the business to be accepted for us under given circumstances.

2. Put all those assumptions in the list. Let’s call them red-points.

3. Similarly: do the list of yellow-points, which are good to have to certain extend, maybe not all of them would be considered as a must, but definitely some of them should come along.

4. On top of the above, make a green-points’ list: those are the cherries on the cake. They have 2 purposes: a. you can trade them during negotiations, b. they will kick your profit.

Second: present all the points (red, yellow and green) to the partner (and remember this word: “PARTNER”), and discuss them. I don’t have to tell you: it is not the point, where you should reveal to htem which is which for you. This is the time where you will find out whether there is a spot to come to a common beneficial solution, or not.

Remember! Unless this is a one-shot only case, the only solution you want to go-in is a WIN-WIN! No matter if this is short, medium or long-lasting cooperation. Why? I’ll explain in a different story.

Third. “We must all face the decision between what is easy and what is right.” Do not fall into a trap: we have already spend so many time on discussion, we have to continue to find the solution. No! this is business – nothing else. And the only business you should do is the one that is good for you (or the company, or the organization, or the team… whatever the negotiations are set out and based on). So! If there is no chance of fulfilling all the reds and at least some of the yellows – give up! It’s not worth investing time and effort if there is no chance of doing what you really want to do, and what is really beneficial (make a note: making the reds, yellows and greens is NOT an easy thing!!! Want to know more – contact me, always happy to help).

For the purpose of this post, let’s assume you did come to the conclusion where all the reds and some yellows are accepted.

Fourth. I can’t tell you how much important this is. And I can’t tell you how many times it has been omitted, just because it was so obvious, that nobody really paid any attention to this point. You MUST be 100% sure that all of the involved parties speak the same language, ergo have exactly the same meaning of what you have agreed on in point 3 above. This is essential! I could give you dozens of examples how “the same can mean different to others” – but probably most of you know what I’m talking about. So I skip this part. But again – call me, if you would like to learn more on this.

Fifth. If the 3rd is a GO, AND the 4th is YES, then (and ONLY then) we start to build the contract.

Remember, this is the only time you can be 100% sure both (or all the) parties are really interested in making this happened THE MOST. This may happen in some time, but not necessarily. So utilize this opportunity to the most extend!

Btw – do you know that opportunity is often missed out by most people because it is dressed up in overalls and looks like a hard work? Yes, it is! Both! It is being missed out by most people, AND yes it is a hard work.

Now we come to the conclusion of what is the purpose of a contract? It is to reflect ALL of our AGREEMENTS for this business as we have agreed in the p.3. AND p.4.

If you have spent time_long- and effort_big- enough, then you have elaborated all the possible scenarios of the business and decided what are the responsibilities and actions required in order to keep the business good or at least acceptable. But this is not enough! You have also discussed AND agreed what are the options in any case where any of the significant parameter went out of the agreed range. This is a must! Because there’s hardly never where you have a full control over all the market and business circumstances surrounding and influencing your cooperation, ergo having real impact on it. If you failed on this, you have driven yourself into an undefined, unknown* trap; it is sitting there and waiting to pop-up, and you don’t know that.

* - it means not only you don't know this, but also you cannot reflect it in any kind of figure! like a risk, cost, possible cost, etc... . Your Financial Officers will hate you for that; there's nothing to compare for them as a big "?" they would hate more.

Now, I can almost hear some…, many of you saying “this is impossible to predict unpredictable”. Believe me – I have heard this sooo many times! AND I have also heard many, many times: “this is so unrealistic, why you are bothering this or that”. This is not a matter how likely it may happen? If the odds are more than zero, then it doesn’t really matter how much more it is. Because we are talking about a good (or perfect) contract. Again - there are many ways to get those over the line, give me a call and I can help you with most of them within "no time".

I think you can now see the picture I am painting: once you know what you want to have, it is possible to get it done!

Because you will always have the wind blowing against you if you don’t know the port you are steering to! (Seneka)

To conclude: if you did all you homework well, and you applied the outcomes beforehand, and prior to any kind of paper work, it is most likely all the parties will know exactly what to do, under any circumstances in order to get the business run smoothly. Therefore you won’t need to take the contract out of the shelf to see what does it say.

Anticipation usually pays you off better than looking for a solution under the time pressure. Especially you’ll never know whom the pressure will press the most.

QED