Unread Contracts Get Revenge Without an Effective Contract Administration Process
Contract administration or contract management refers to the processes and procedures businesses need to manage the negotiation, execution and ongoing management of their contracts with customers, vendors, contractors and consultants. An effective contract administration or contract management process is a “must have” for every business, regardless of size.
We’ve touched before on the desire for contracts to be balanced in their terms and reasonable and clear when describing the parties’ business expectations. Negotiating contracts requires more than the work of experienced lawyers who have a duty to zealously advocate for their clients during negotiations. The contract negotiation experience also requires thoughtful input from the businesspeople who will have to live with the contract that’s ultimately signed and who will be responsible for ensuring that the commercial relationship memorialized by the contract is profitable and otherwise a success.
We’ve also written before about the importance of managing business contracts once they are signed. Monitoring contract performance and deliverables and tracking key contract dates are essential parts of an effective contract management process. If done right, contract management is a tedious job that requires a meaningful level of contract administration experience and no shortage of I-dotting and T-crossing throughout the life of a contract.
Signing the Contract – Is It the Right One?
The focus of this article is on the process of signing a contract—yes, the process.
When it comes to signing a contract, a best practice within a contract administration process involves much more than clicking the “sign here” button that appears in the email you receive from DocuSign or another e-signature platform, or printing and signing the contract attached to the email you receive from your soon-to-be business partner. It is critical for the businessperson in charge to carefully read the contract before signing it to verify that it is the correct version of the agreement and includes all of the agreed-upon terms.
But business owners and managers are busy, and they are generally trusting of the business partners they’ve just negotiated a contract with and the counsel they’ve hired to work on the contract for them. So it’s no surprise they don’t take the time to go through the verification step, not to mention that e-signing platforms have made the act of signing a contract virtually effortless. In fact, clicking “agree” before reading the final version of a contract is so easy that, for some, it may seem like an inconsequential act—somehow less “legal” than signing a paper contract with an ink pen. And some may not even remember doing it.
Whether a businessperson is signing a contract electronically or using pen and paper, it is tempting to assume the version presented for signature is correct and not take the time to read it. In either case, not taking the time to read a contract before signing it can lead to significant consequences, which some experts refer to as the “revenge of the unread.”
In one article on the topic, retired commercial litigator Larry Rouse said he earned his living litigating contract disputes, and many of his cases involved contracts the parties didn’t even read. Mr. Rouse went on to describe a situation he encountered last year when someone presented him with a “standard” contract to sign. Given his background in commercial litigation, Mr. Rouse took the time to read the contract, and it turned out not to be “standard” at all. The contract included a one-sided provision that Mr. Rouse objected to, and, as a result, he was able to change the contract’s terms before signing.
Uncovering surprising and undesirable terms isn’t the only reason you should carefully read a contract before signing it. We’ve seen situations where contracting parties have accidentally signed the wrong version of a contract due to a disorganized contract administration process. This might happen when businesspeople on the two sides of a negotiation retrieve the “final” version of the contract from their cluttered email inboxes, only to discover after exchanging signature pages that each side pulled a different version of the contract from email. This happens more frequently than you might think.
In some situations, the parties may catch the mistake quickly and cooperate with each other to fix it. In other cases, the outcome may not be as favorable, especially if one of the parties holds to the version of the contract he or she signed and a court gets involved to resolve the discrepancy. In one such legal dispute, instead of the court choosing one party’s signed version of the contract over the other party’s, the court decided there was no contract at all. That may have been the biggest surprise of all to the parties!
The practice of signing contracts without thoroughly reading them is alive and well and probably isn’t going away any time soon. This is especially likely given the time demands of running a business and the ease with which businesspeople can sign contracts using what we refer to as the easy button.
It can be tedious and time-consuming to re-read a contract to verify it’s the correct version before signing it. But conflicts are costly, and outcomes can be unpredictable, so reading a contract thoroughly before signing will be time well spent. Adopt a “trust but verify” philosophy and implement a contract administration process that, at a minimum, requires a thorough review of every contract right before signing to confirm it is the correct version and includes all of the agreed terms.
The life of your contracts and the success of your business partner relationships might depend on it.
Sheryl Nelson is president of On Point Business Administration. Sheryl’s experience as a business and M&A lawyer provides a unique perspective to clients retaining On Point as outsourced chief administrative officer. That insight also benefits exiting business owners who need to get their businesses in order before going to market and responding to thorough due diligence requests from potential buyers.