Contracts: Handshake or Handcuffs?

“We don’t need a contract, let’s do it on a handshake.” How often have you heard that said? What people really mean is “Contracts are expensive, long-winded documents that no-one understands and I will feel handcuffed to you.”

So while the “handcuffs” approach scares many people away from using written contracts, they also know deep down that the alternative “handshake” doesn’t afford them the protection they really need.

Is there an alternative approach? Something which is neither a handshake nor a handcuff, but which allows both parties to sleep soundly at night? Yes, there is, and I call it the “warm blanket” approach.

If you’re wearing handcuffs, there’s no doubt that the other party is in charge – you have been forced into a situation you are not comfortable with and you feel restricted and resentful. On the other hand, when relying on a handshake, while you may trust the other party, there is always that nagging doubt that your recollection of what was agreed might not be the same as theirs, or that they may expect too much of you. Either way, it’s a sure sign of danger ahead.

Virtually everybody enters into contractual relationships believing that everything will work out. However, the proliferation of commercial litigation lawyers tells us that this is a case of the triumph of hope over experience. The reality is that in the rush to get the deal done, we can often forget that our understanding of it may differ to the other party’s – or that they may eventually try to wring an extra pound or two of flesh out of us.

Bring in the warm blanket.

The “warm blanket” approach involves looking at the real commercial risks that you face, bringing them out into the open, and dealing with them up-front in a clear and open manner. If both parties understand what is expected of them – and clients and customers often forget that they have a role to play in making a deal successful – the opportunity for disputes is significantly reduced.

This approach is more collaborative, less combative approach to contracts than the “handcuffs” approach, but is also much more business-like and considerably less open to misunderstandings than the “handshake”. It is also a very pragmatic and cost-effective solution – hence the resemblance to a large woollen blanket: strong yet soft, and (importantly), designed to keep both parties warm.

When disputes do occur over contracts, it’s rarely some intricate legal issue (for example whether “he” includes “she” and “they”, or exactly what constitutes “force majeure”). Disputes are nearly always about a more practical problem – like the timing, or exactly what was included in the price.

Focusing on the issues which people really fall out about is the key to preventing disputes, and this means making sure that everyone understands the boundaries of the arrangement by creating contracts with clarity. Drafting contracts which are clear (so that everyone understands them) and concise (so that the size and complexity of the document is proportionate to the risk involved in the deal), not only reduces the likelihood of future disputes, but also saves time, money, and a great deal of hassle.

No-one (except a litigation lawyer) wants to go to court, so doesn’t it make more sense to concentrate your efforts on preventing disputes rather than resolving them? This is the equivalent of wrapping yourself in a warm blanket before you go to bed, rather than hunting for one when you are cold in the middle of the night!

The creation of clear and concise contracts is essential in helping you develop your brand. Contracts not only sets up the relationship from the outset, they also create a basis for how your company is viewed. Where an excellent rapport is created with one company, this can be a spring board for future “good business karma” within an industry.

Given the above, it is surprising that there is frequently a serious disconnect between the contractual documents which organisations use and their general marketing materials. Sloppily drawn contracts suggest a lack of professionalism and attention to detail. On the other hand, ‘warm’ prospects can soon turn ‘cold’ when faced with a long and complex document written in legalese.

With global corporate agreements becoming widely accepted as a potential expectation for growing businesses, it is important to create secure terms which everyone can understand, appreciate and exercise across all borders. Contracts should be a tool to unite and uplift all parties involved; they should act as a move toward progression – not act as handcuffs that bind.

Both handcuffs and handshakes can ruin a good business relationship: the one is too tight and the other too loose. However, adopting a fair and collaborative approach using contracts with clarity is one of the easiest ways to maintain and improve those relationships.

Warm blankets not only provide comfort for children – they can do the same for businesses too.