You Call Them Business Partners, But Your Contract Says Otherwise

A business contract is typically one-sided in favor of the party who wrote it. Instead, ensure your contract is fair in both directions. The deal will go more smoothly. Photo by Romain Dancre on Unsplash.

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 couldn’t speak on a similar topic to a similar organization for six months (they billed this clause as a “noncompete”). Um, last I checked, I was giving them something for free! That won that year’s Excessively Ridiculous Clause Award.

Most favored customer

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

Overly restrictive noncompetes

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 in return.

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, regardless of how much or little business you’ve given the supplier in the past. Once again… um, no.

Sure, that’s appropriate for sharing proprietary technology or secrets. But when the partner or supplier sells paper clips, 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.

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 affecting 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 effect Larry is having on your relationships. If you’re not careful, he’ll make some of the missteps mentioned below. When he does, he can sour a relationship right from the start.

The way your legal agreements are written sends some pretty strong signals about your view of a professional 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.

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.

Your 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.

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 in the comments below.

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).

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Published: Wednesday, January 10, 2024 – 12:03

Published Nov. 29, 2023, in The thoughtLEADERS Brief on LinkedIn.