A contract is a “good” contract, if…

Contract negotiations are a demanding but also fascinating part in a project, no matter what the project is. A “good” contract as the result of the negotiations improves the relationship between the parties and ensures a high quality performance on both sides. Many people, however, do not pay attention to the contract to be signed because they think it is sufficient to have a vague idea about contractual content and the necessary performances in their mind and it is therefore not necessary to formulate the content of the contract carefully. I beg your pardon – such thinking is a huge mistake – a carefully drafted contract is much more than just an outline of the necessary performances. It relates to the project, benefits both parties, provides protection and is reviewed and approved. Let´s examine these four items in more details.

A good contract provides benefits for all parties

A good contract should bring benefits to all parties. In reality, however, the party that created a first draft of a contract is the one who writes the regulations in the contract according to how this party sees and understands the contractual matter. The draft is therefore often one-sided. At first glance, this is understandable. In a balanced contract, however, the interests of all parties are taken into account sufficiently.

A hint for a better relationship with the other contracting party: If you even prepare a draft, then think about what could be of value for the other side. If you anticipate their needs and reflect this in the draft, it can lead to an enormous leap of faith that might pay multiple times over the life of the project.

A good agreement relates to the project to be regulated

It is often forgotten that from a legal perspective, each project has a variety of features that might be different to any other project project: deadlines vary, additional tasks generate complexities and benefits differ significantly. Nevertheless, once a contract is drawn up the wording of such contract it is often used with any other project. This can later be problematic if it turns out that a feature of the current project was not regulated for the old project but is important for the current one.

It is therefore strongly recommended to review an existing contract draft with an eye on the current project and to think about whether all possible situations regarding the new project are regulated. The errors are often made because the party thinks the current project “is the same as the last one”. However, very often this is not the case.

A good contract provides protection

This item seems to be obvious and you might be of the opinion that a mutually beneficial contract covers this point already sufficiently. Far from it! The protection level is always individual and depends strongly on ones own risk situation.

The contract should provide individual protection insofar as certain situations in the context of a project can become problematic. One only has to think about problems regarding claims for damages, the non-performing of services or the inaccurate description of the work to be performed and it quickly becomes clear that there is great danger lurking. But also not obviously problematic areas – the decisive contract language in multilingual contracts, the place of a possible court proceedings or the possibility of the use of an arbitral tribunal – can quickly lead to existence-threatening situations. Regulating such questions at the beginning of a project, when the parties trust each other, secures solutions when the parties no longer understand each other at a later date.

A good agreement is reviewed and approved (by a specialized lawyer)

It is understandable that many people do not want to make the effort to understand legal issues in full detail – legal matters are complicated. Moreover, working with an attorney can sometimes be intimidating and expensive. But not understanding the legal issues can be a big mistake.

Often not enough effort is made regarding the selection of the lawyer in charge. Rather, the lawyer who has advised in a traffic accident is certainly competent in establishing a limited liability company and the issue of alimony …  Do you spot an error in the preceding sentence?

The lawyer who will be working for you should be technically suitable for the particular case and, on a personal level, pleasant to deal with – and to have experience with similar cases is certainly not an unfavorable condition either.

After selecting the lawyer he shall examine the contract, explain the risks and propose changes to the wording of the contract where this is necessary because of your own position in the project. The understanding of a contract is the key to recognize one’s own risk. And to maintain an overview of the important issues in a (possibly large) contract in the aftermath, it is helpful if the lawyer draws up a content summary of the contract.

 

The law firm LEXA is specialized in advising German and international clients in the matters of company and corporate law and contract design. You want more information? Follow me on Twitter (@kanzlei_lexa) or become a fan on Facebook (kanzlei.lexa). And don´t forget to visit my website (in German and in English language) on www.kanzlei-lexa.de or my blog on www.entre-preneur.de.

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About Carsten Lexa

Carsten Lexa, LL.M. holds an LL.M. in International Commercial Law from the University of Westminster in London, UK. He has been an Attorney at Law in Germany since September 2005: He was Associate Attorney at the law firm of Lachner Graf von Westphalen Spamer in Frankfurt am Main until May 2007 (Commercial Law / Corporate Law) and has been a Partner in the law firm of WPV Rechtsanwälte until May 2009 dealing with Commercial Law / Corporate Law / Contract Law matters. In June 2009, Carsten Lexa established his own law firm, advising corporate clients, especially family businesses, in the areas of Commercial, Corporate and Contract Law matters (Website: www.kanzlei-lexa.de). Carsten Lexa is also engaged in the academic side of the Law, being appointed Examiner at the Julius-Maximilians-University in Würzburg, and he is seminar facilitator in the field of claim management, company formation and company restructuring. Since 2010, he is also associate professor at the University of Applied Science in Würzburg.
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