Q: What is the third most common small business legal issue?
A: Disputes with Contractors or Suppliers.
No business is an island unto itself. The very word ‘business’ describes a long history of trade and collaboration for the goal of profit. We’re all in business together.
In the normal course of business, disputes happen. Use this survival guide for doing business with Contractor & Suppliers in order to make everyone’s lives easier.
Write it down
A recent study put Contractor and Supplier legal disputes as the third most common legal problem that small businesses face. Be sure to recognize that at every stage of a deal, it is important to clearly communicate intentions. When it’s time to discuss the contract, get it written.
Problem: Thick Boiler Legalese, No Real Agreement
Who doesn’t like the sound of a giant stack of paper hitting a desk? Contractor agreements and supplier agreements can be very long and drawn out. At the same time, many of these agreements may leave out a lot of specifics. Those turn into unanswered questions that leave room for legal disputes down the road.
Maybe that giant agreement was a template contract. Perhaps the agreement was presented by your supplier or contractor, and it happened to have been created many years ago.
Solution: Update old contracts.
The goal here is to keep agreements concise and relevant, while also being thorough enough address a variety of situations. Keeping agreements real and relevant to you and your contractors are ideal. This is not to suggest that you judge agreement’s worth by being too large, but chances are, if you haven’t worked with your business lawyer to create an agreement lately, the contracts are likely not super relevant to your specific needs. Sometimes that results in template contracts trying to address many needs across many industries over many years and failing to address substantial issues at hand.
Tactical Approach:
We recommend that you use a few strategies when drafting or re-drafting your agreements.
• Avoid being too generic.
o Instead of stating something like “if supplier does not deliver 8 tons of raw material, the supplier will work to rectify the situation within 30 days,” suggest something more along the lines of, “if the supplier does not deliver 8 tons of raw material on the agreed upon date, the supplier will provide proof of transportation for the remaining difference of materials to the customer within 2 business days. Should the supplier fail to deliver materials in full within 7 business days of agreed upon date, the supplier will be liable for $150 per missing ton in damages to the customer.”
- Likewise, if you are a supplier or acting as a vendor for another company, include your protections.
• Make it specific.
- Case law is very dependent on individual situations. If you expect damages (or your contractor expects damages) for a particular situation, it should be clearly spelled out. This includes deliverables. Try not to say that xyz will happen “upon project completion.” Spell out what constitutes contract completion. Phrases that make use of “reasonable” are also likely to just make things grey.
Sorry to say, but the law doesn’t have a cheat sheet for a “reasonable time of delivery”, “project completion”, “customer satisfaction”, or your contractor’s “reasonable efforts”.
Instead, talk with your suppliers and contractors and make it specific. Instead, you’re contract should address detailed outcomes like:
Supplier will be paid X amount after successful delivery by signed receipt from customer management representative, to xyz address on this date.
Project will be deemed complete after supplier representative and company representative have completed a signed satisfaction checklist, which should include accurate use of materials, proper installment for: a-z.
Talk To A Professional
Problem: You don’t know what you don’t know.
How can you protect yourself if you are have not thought about all the ways in which the relationship could go sour? We would all be pretty miserable if we walked around thinking about how every event could go wrong in our life. At the same time, we would be pretty miserable if we did not make preparations for likely events that threaten a project’s success. How do you know you have a comprehensive list of possible situations and how to handle them?
Solution: Learn from other people’s mistakes.
Perhaps you have friends, industry or association colleagues that you could reach out to? Ask them if they have ever used a type of vendor, or attempted a certain type of project before. Find out how it went wrong, hiccups along the way, what to look out for. Keep up on trade articles that detail some of the dangers of your business that other companies are facing.
A lawyer that specializes in Business, Employment, Real Estate, Construction or Technology law is also very valuable. They quite literally study and classify the ways in which business deals go wrong for your sector. Day in and day out. Lean on their experience to brainstorm additional protections.
Tactical Approach:
Privately list concerns with each responsibility on your end, and each responsibility of the contractor or supplier. List ways that you think those situations should be handled. If you leave it up to chance, it could be their lawyers and a judge to make the decision for you.
Consult with colleagues to see if you are missing anything.
Speak with a lawyer who knows the type of work you do. Get tips from them on negotiating the contract.
If necessary, have that lawyer draft the proposed agreement.
Don’t be afraid to ask.
Problem: Confusion
If you are not sure about anything in a contract, the time to ask is now. It may be good to go over the main points of the contract, including any specifics that you might have the slightest question about.
Solution: Understand.
Don’t be shy about getting clarification. It may or may not be your preference to communicate via email, but consider it for this topic. Emailing your contract questions and request for clarification or modification avoids putting the other party on the spot. It allows them to easily forward your inquiry in its original intent to other stakeholders or their lawyer.
If you get clarification back via email, great. If what they are saying is specific and reasonable, great! However, don’t be shy about asking for a line in the contract to be re-written to reflect the clarification they just provided. Likewise, if you have concerns about what they are asking, consider carefully if and how you should suggest an alternative agreement on a particular topic.
Other tips:
Do your part.
You can’t guarantee others will always hold up their end, but you can control your own actions. Do not be your own worst enemy.
The better the documentation, the better.
Simply put, if you have email documentation discussing various issues, that can be a very important part of avoiding or winning litigation.
If you think a dispute might be brewing, contact an attorney for guidance. Their advice on how to handle the situation could be far less costly than the mistakes made on your own.