Monday, June 25, 2007

10 Questions to ask before signing a contract

I'm about to sign an agreement to work with a particular group. The relationship could last for a while, so I wanted to make sure that the terms for our working together were optimal - for me as well as the other party.

I Googled "Questions to ask before signing a contract," but found nothing useful. So this weekend I sat down and wrote up my own "Top 10 list" of questions - all designed to create greater value for both sides.

So here's my list. It's incomplete and probably naive. But it helped me work out what I wanted from the relationship, and it may help you. If you see a way to improve this list or add to it, please leave a comment by clicking on "COMMENTS" at the end of this post. Best suggestion wins a Canadian Entreprenur coffee mug.

So here is my list of 10 Questions to ask before signing a contract

1. Are these people I want to do business with / be associated with?
2. Is this agreement a fair representation of what I want?
3. Is this the best I can do? How could I get more/pay less?
4. Are both parties being treated fairly?
5. How might we create more value for both sides?
6. What can we do right now to create greater trust on both sides – which could lead to a better deal all-round?
7. How long will this agreement last? Do we have a formula for ending it on an efficient (and civil) basis?
8. What “exit” do I have if I get a better offer from someone else?
9. Is there a balance of value for both sides? Where do I get more from them than they get from me? (unstable and unsustainable)? Where do they get more than I do (ditto)?
10. Who else should look at this agreement for me?


Unknown said...

A lawyer once told me that contracts are most important when things are going badly and that I should ask myself whether the contract I am signing is okay if the worst case scenario happened. If things are going well and both parties are acting in good faith, a contract does not have to be bullet proof. So, I would ask the question "What are the 3 worst things that could happen in this new relationship and does this contract manage this scenario in an acceptable way?"

Anonymous said...

1) Merger/Acquistion/Divesture - so you no longer work with the same people whom you have had a great relatonship with so you may not have that cozy relationship you can rely on

2) Bankruptcy - how do you protect yourself if your vendor no longer exists/your customer now has an executor you need to work with to get paid

3) Force Majeur - 9/11, Hurricane Katrina, etc... now what do you do? As a vendor can you collect on unpaid bills somehow? Or, in the alternative, can you stop your customers from suing you for nonperformance? As a customer, can you comfortably continue with your business on your schedule with a new vendor when your vendor can no longer support it or do you risk noncompete lawsuits?

A great law professor kept drilling this point into my class: "Memories fade, people die. Make sure you document everything." Contract law is often pessimistic but also practical.

Hope this helps.

Anonymous said...

Thank you for this! I too have been searching on the internet for some questions and guidelines to follow. I appreciate your blog!