… Don’t Forget the Contract, Part V

In this series, we’ve indicated that contract lifecycle management (CLM), which is becoming big, is useless without good contracts. But good contracts don’t just happen. They have to be created through a careful process. A process that first creates a detailed SOW, then defines the risk, and then defines the dispute process and resolution options where both parties can agree. And that even defining all of this might not be enough to construct a good contract. And we proved a lot of details. And we are at the point where we asked if you do all of the above and everything it entails, can you finally start drafting the contract? And the answer is …

Well, you can, but if you do, the contract will be mostly harmless, and that’s just not good enough. There’s still a few things that need to be figured out first. Possibly a few dozen things, but the following is a starting list.

Performance Monitoring and Rights of Action

Specifying acceptance criteria and performance requirements of each product, service, and deliverable, as well as corrective action requirements on failure is a great start, but there should be performance improvement requirements if performance is not, or barely acceptable, in the beginning or starts to go downhill. One should not have to suffer a supplier continually being late or underperforming just because they continually correct their mistakes at the 11th hour.

One needs to be sure to specify actions that can be taken or retributions that can be demanded if one party repeatedly fails to meet their agreement. In addition, the contract should also specify that both parties may maintain performance data beyond the contract and consider such performance in future sourcing events and contract negotiations.

Unpredictable Events

There’s force majeure, and then there is the collapse of the only mine the supplier has at their disposal, the banning of a product, component, or raw material in your target market, or some other unforeseen, and totally unpredictable event that makes it impossible for one or both parties to continue the contract.

In addition to a solid force majeure clause, there must be an explicit specification of what could constitute an unpredictable event that is contract ending.

Unalterable Order of Precedence

There will be a contract. Appendices. Statements of Work. Addendums. Etc. At some point, contradictions, real or perceived, will creep in. All your hard work to try and prevent disputes that can lead to unforgiving arbitrations or costly litigations could be for naught! Be sure to specify in a clear, and unarguable manner, which document will take precedence in the case of conflicts.

Then, you have to get in the right mindset and figure out how you will ensure the following will be the case when you actually draft the contract.

No double (or triple) negatives anywhere. NO EXCEPTIONS!

Let’s face it. The more negatives, the more opportunity for misinterpretation. A lawyer might understand a 73 word sentence with 3 negatives, but will an average person? Probably not. And if all lawyers fail to understand equally, this could not only be used as a foundation for a lengthy, and costly, litigation that could easily be settled via arbitration but also result in an extremely costly decision not in your favour.

No reliance, or lack there-of, on Oxford Commas

The lack of one single Oxford Comma cost Oakhurst Dairy millions, and it will cost you too. (Source) Every condition should be clearly specified, and where there is any ambiguity, bullets, numbers, or smaller sentences should be used. Lawyer preferences be damned.

No sentences or paragraphs that cannot be shortened for clarity.

Remember your goal that this should be easily readable, and understood, by anyone with a high school diploma. So, if you can simplify it, without losing any meaning or detail, do so.

If you can address the key issues above and figure out how you are going to meet these key drafting requirements, then, and only then, are you ready to start drafting your contract.

But are you ready to complete it? That’s a good question and the answer is …

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