You Call Them Business Partners But Your Contract Says Otherwise

Man Holding Out ContractYour legal department is screwing up. Royally.

You work hard to build relationships with other businesses. How many hours do you invest getting closer to partners, customers, and suppliers? And then that wonderful handshake happens and it’s time to hammer out the agreements. That’s when Larry the Litigator takes over.

Larry’s a generally good guy. He’s a great corporate attorney. His main mission in life is to protect your organization from litigation. Sometimes he even generates real bottom-line value with the way he constructs contracts. The problem is, he’s gotten so aggressive in constructing legal agreements that he’s negatively impacting all those relationships you worked so hard to build.

I’m not writing this to berate Larry – I’m writing it to make YOU aware of the impact Larry is having on your relationships. If you’re not careful, he’ll do things like I mention below. When he does, he can sour a relationship right from the start.

Shame on you if you’ve let the following happen to your contracts:

It’s not bilateral to start

All contracts have indemnification clauses to protect one party when the other party does something stupid. The problem is Larry writes his contracts with unilateral indemnification. Translation: Larry makes your partner protect him from stupidity but Larry’s not willing to protect the partner back.

I’ve never seen a contract revision where a partner’s first edit isn’t to make this bilateral indemnification (and Larry always accepts that change). Why send the wrong message by starting with unilateral? Just write it bilaterally to begin with and your partner will feel much better about the relationship from the start.

Overly restrictive non-competes

Larry wants your company to maintain an advantage over your competitors. That’s fine. What’s not cool is when Larry tells your partner (via the contract) that the partner/supplier can’t do ANY business at all with ANY of your competitors.

Sure that’s appropriate for sharing proprietary technology or secrets but when the partner or supplier sells paper clips, Larry restricting them from selling paper clips to competitors borders on moronic. Companies need to make a living – don’t let Larry restrict their business unfairly.

Example: I spoke for free to an organization a while back. Actually paid my own way to go speak to them. They had a clause in my contract that said I wouldn’t speak on a similar topic to a similar organization for 6 months (they billed this clause as a “non-compete”). Ummm, last I checked I was GIVING them something for FREE! That won that year’s Excessively Ridiculous Clause Award.

Most Favored Customer

Larry decides he’s going to “help” negotiate better pricing (even though you’ve agreed over a handshake with your partner/supplier what the price will be).

Larry slips in a little clause that says “Supplier (your supposed ‘strategic business partner’) shall give Customer (Larry) ‘most favored customer status’ whereby Supplier shall provide pricing to Customer equal to or better than Supplier’s lowest price offered to Supplier’s other customers.” Translation: Larry is going to ride the coattails of another company’s procurement group who beat the supplier up on pricing irrespective of how much or little business you’ve given the supplier in the past. Once again… Ummmm no.

The way your legal agreements are written sends some pretty strong signals about your view of a relationship. You, as the “owner” of the relationship with your partners, are responsible for the tenor and tone of those agreements. Don’t let Larry break down the trust you worked so hard to build up.

When’s the last time you carefully reviewed a contract from your partner’s or supplier’s perspective? What crazy clauses have you seen slipped in there? What contract horror stories have you seen? Please share.

Mike Figliuolo at thoughtLEADERS, LLC

P.S. Apologies to my attorney Chuck. Not a slam on you bro – you’ve never done any of the above (most likely because you’re a good guy and you know I’d lose my mind if you tried any of these slicky boy legal moves).

5 Responses to “You Call Them Business Partners But Your Contract Says Otherwise”

  1. Hapi says:

    hello… hapi blogging… have a nice day! just visiting here….

  2. Joe Ctoys says:

    How about the liability clause, whereby if something really bad happens then the corporation holds the service provider fully liable for any incurred damages to a third party. Significantly notches up the insurance needs for the service provider, if there potential liability is much greater than their net worth.

  3. Mike Figliuolo says:

    @Joe – yeah, I love the uncapped liability for ANYTHING Larry's company does. Some of those clauses are so bad that the "Partner" could be responsible for tsunamis in Asia.

  4. Kiara says:

    Hey thank you for sharing your thought on this topic. After going through your Blog I am also agree with you,. Its impressive,..

  5. Jim Brochowski says:

    Good post Mike. A good warning to managers to follow-up and be sure the legal folk understand the company's philosophy instead of just having them, "take care of things."

    I have to admit to being guilty of this myself from time to time. Running a small non-profit I sometimes feel overwhelmed, and if I have the chance to say "Just do it" (albeit nicely) it can be tempting.

    Then I remember that it pays to be aware of what all my volunteers are up to and how they're doing things so I know we're all on the same page.

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