(posted 6/22/98)

Tips and suggestions on contract-writing from the author of "What They Don't Teach You At Harvard Business School."

One party generally benefits more than the other vague or nonbinding language in a contract or letter agreement. Determine up front whether a vague agreement or an airtight one better suits your purpose.

I prefer letter agreements to more formally constructed contracts. Blue-bound documents tend to scare people. A well-drafted contract is one that is airtight, contains almost no legal phraseology, and reads like a letter from home.

Always draft first. Once you begin the process of converting deal points into language, scores of questions come up. You want the opportunity to get your version down on paper first.

There is one exception to this. If you are in unfamiliar legal territory, it is often quite revealing to see what the other party considers important by what they have included in the contract.

When redraft language comes back, treat it in a covering or amendment letter rather than drafting again from scratch and forcing the entire contract to be re-reviewed. (It is impossible for a lawyer to go through a contract a second time without coming up with additional points.)

The "definitions" section of a contract should be carefully scrutinized if you are on the reviewing end and scoured for opportunity if you are doing the drafting. What something is legally called can alter everything else in the contract.

Many years ago, when we were negotiating Gary Player's golf club contract with Shakespeare Golf, we wished to have the right to do a separate deal for golf grips. Golf grips are sold to golfers who want their clubs regripped because they are old or have lost their feel, and while this was totally noncompetitive with the Shakespeare agreement, we knew if we raised this issue they would resist. And so in the "definitions" section of the contract we narrowly defined a "golf iron" as a "metal flange attached to a metal or fiberglass shaft by means of a hozzle." We made no mention of grips, ultimately did a separate deal with a grip company, and the Shakespeare-Player agreement continued amicably for many years.

Legal phraseology should be considered red flags. Lawyers can draw from a litany of words, terms, and phrases which are intended to reverse the meaning of everything that comes before or after.

Break down guarantees and royalties into their lowest common denominator. If the contract includes more than one product or more than one territory, divide the guarantees, get them allocated accordingly, and make each a separate account. (There have been many occasions -- separately accounting Australia and England comes immediately to mind -- where this has resulted in hundreds of thousands of dollars more in royalty income.)

Speed of execution is critical. Enthusiasm for a deal diminishes as time goes by.

Don't send contracts directly to legal departments but to the people with whom you are dealing. They are likely to be just as impatient with their own legal department as you are. Internally, they will often take your best position against their own legal department ("that's a meaningless point") just to get it out of legal.

From What They Don't Teach You At Harvard Business School by Mark H. McCormack. Copyright © 1984 by Book Views, Inc. Used by permission of Bantam Books, a division of Bantam Doubleday Dell Publishing Group, Inc.

What They Donít Teach You At Harvard Business School, by Mark H. McCormack
The Most Valuable Business Forms You'll Ever Need (Self-Help Law Kit), by James C. Ray
The Business Agreements Kit, by Ted Nicholas