Contracts: Read And Understand Before Signing

Walsh Enterprises Business & Financial Advisors Huntington Beach, California USA http://www.awalsh.us walshal1@aol.com (714) 465-2749 Contracts Read and Understand Before Signing (Sound Ridiculous? You’d be surprised) Reprint of a blog posted May 2009 at www.walshal.wordpress.com

I’ve been dealing with contracts for 30 years, in a variety of capacities and for every conceivable reason. I’ve dealt with a number of decision makers who were involved from a variety of perspectives. One of the things I’ve observed is that many of them (far too many) approved and signed contracts without understanding what they said. A classic example is a company we acquired a few years back. This company had been doing the same thing for thirty years, and would routinely rubber stamp multi-year renewal contracts for general contracting services. After we acquired them, I started looking at the contract files. I was horrified at some of the things I saw. For instance, they were signing contracts for general contracting at power plants & petrochemical sites that had clauses which made them exclusively liable if something went wrong on the job - regardless of who was at fault. So if the customer or another vendor failed to observe the safety rules and caused an incident, our company was exclusively liable; even though we did everything right.

When I asked our managers about it, I realized that they didn’t understand the language contained in the clauses and had no idea what they were committing to. It never occurred to them to ask someone. I guess their egos wouldn’t allow it. They just ignored the clauses they didn’t understand. From that point forward, all contracts had to be reviewed by me prior to acceptance. I worried a great deal until existing contracts ran out and were renegotiated without the dangerous clauses. A single incident could have wiped us out. We were just a little company doing work in mammoth, volatile facilities worth hundreds of millions to billions. The large companies we were contracting with made no effort to fight us when we renegotiated and had the offensive clauses removed. They slipped the clauses in for years, and took advantage of our stupidity until we figured it out. Is this going on at your company?

Our managers also signed contracts obligating us to provide insurance coverages and bonds far in excess of what we could afford -AND- they signed contracts to provide services that we were not legally certified to provide. I had to do some fast talking and fancy maneuvering to get out of those. Sometimes I think our people signed these contracts without even looking at them. That’s just a small taste of what can happen if you don’t thoroughly understand what you’re committing to before signing contracts.

Big companies especially love to take advantage of the ignorance of small business owners. They’ll put in all kinds of “interesting” clauses that can burn the small business owner if they’re not VERY careful. Don’t put yourself at needless risk, or in an untenable situation. Make sure you thoroughly understand what you’re signing. If in doubt, seek professional help. It could save your business. Ask the right professional. Don’t assume your lawyer understands. Many clauses fall outside their scope of understanding.

Contracts: Read And Understand Before Signing

by Alan Walsh on Jul 13, 2009

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