Reducing Legal Costs And Risks In Today’s Environment

MANAGING RISK IN TODAY’S ECONOMIC ENVIRONMENT: PART I–HOW A PROPERLY DRAFTED CONTRACT CAN SAVE YOU THOUSANDS OF DOLLARS IN LEGAL COSTS AND KEEP YOU OUT OF COURT

By: Richard E. Korb, Esq.[1]©2010

Introduction

With the ongoing health care debate surrounding healthcare costs, we all understand the importance of preventive medicine,– eating right, exercising, getting regular checks-ups and taking other steps to stay healthy and reduce the risks and costs of major illness …but how many of us apply that same wisdom to manage risk and reduce costs in our business and legal affairs? Stats tell us that very few do.

Why Contracts? One of the key areas where you have the ability to manage and reduce risk and costs for your business (and personal) affairs is having well-drafted contracts w/r/to the business you transact & the agreements you make with others.

Consider how much we rely on contracts in our business and personal dealings: Regardless of your business or occupation, age or income,  at one time or another you  will enter into a contract with a person or company involving significant sums of money (e.g., a construction contract for remodeling or expanding your office or home, a commercial lease, a realtor wanting an exclusive listing to sell your home; an attorney asking that you sign a 10 page fee agreement; a  contract with a manufacturer or supplier or distributor of products for your company (e.g. office supplies); an employer wanting you to sign a non-compete or non-solicitation agreement.)

And with the growing number of individuals working as independent contractors or freelancers, or starting their own business, gaining a firm grasp of contract language is more important than ever. Selling your skills, services, or products can be tricky. If you end up in court on even a “small” dispute, the attorney’s fees and costs can be substantial and wipe out your business.

But do you really know or understand what you are signing? How many people actually take the time to review or understand their contracts or bother to consult a lawyer BEFORE they sign them? Surprisingly–Very few.

Whether it is a simple contract or a complex transaction, in each case, you are agreeing to terms and conditions that could impact your financial well-being and if you don’t understand what you are signing, the financial damages can be in the thousands—and the emotion impact even worse.

The bad news is that despite the fact that written contracts are supposed to protect you in the event of a dispute, often they are so confusing or ambiguous or one-sided or incomplete—that they do little to protect you from the financial risks you are trying to avoid…The good news is that there are basic clauses one can insert in a well-drafted contract that can help you minimize the risk and costs of litigation:[2]

In discussing the basic elements of a contract, I am not suggesting you do away with your lawyer. On the contrary, I strongly suggest that a couple of hours up-front with a business attorney can save you thousands of dollars and headaches on the back end.

In my career, time and time again, I’ve seen business clients who came to me only after they were in the middle of a business dispute. When I asked to see the contract they signed, I was often shocked by the content, or lack of it—leaving them highly exposed to legal and financial risks and costs. In many cases, they simply downloaded a template from the internet that had little or no application to their circumstances and needs.

In so many cases, had they consulted an attorney before they signed the contract, they could have anticipated potential legal problems. They could have inserted language in their contracts to minimize the risk and costs should a dispute arise.

So I’m not suggesting you bypass going to an attorney just as I would not suggest becoming your own cardiologist. But knowledge is power. The more you understand about the basics of good-contract drafting, the more informed you will be when you sit down with your lawyer and ask him questions; and the more careful you will be when you receive a proposed contract from your future supplier, distributor, vendor, employer, business partner, realtor —and the better prepared you will be when you are trying to decide whether it is safe to sign a contract or what changes you should make, if any.

[Next Time--The Attorney's Fees Clause]

[1]This is Part I of a five part article.RICHARD E. KORB is a seasoned attorney with 30 years of business litigation and transactional (contracts) experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, and general civil law and he has drafted and negotiated over 250 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters.  In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts. ©2008