When It Comes to Contracts, Nothing is “Standard”
“It looked pretty standard to me.” In my 20 years of practice, I have heard those exact words on many occasions from clients, prospective clients, and fellow employees (when I was in-house) in all departments at all levels in response to me asking them why they signed or approved the contract they were now presenting to me in connection with a dispute that had arisen with the other party to the contract.
As many of them came to learn, in the world of contracts, nothing is “standard.” Just because it is in smallish print, dual column format, and the other party called it their “standard form” does not mean it is safe to sign or that it is not negotiable. Moreover, while there are many commonly used legal provisions, assuming that a contract is a mere formality or that because it contains customary language careful review is unnecessary, is a dangerous approach to doing business that can cause serious trouble down the road. Interpretation of commonly used legal provisions is often the subject of litigation. Just ask Under Armour, Inc., which recently found itself before the Court of Special Appeals of Maryland arguing about the meaning of the word “losses” in what many people might consider to be a standard contract provision providing for the recovery of attorneys’ fees [1].
The provision appeared in a contract between Under Armour and the architect it hired to build a visitor center at its corporate headquarters in Baltimore, Maryland. The question for the court was whether the term “losses” should be interpreted to include internal time spent by the architect’s employees on dealing with the lawsuit it filed against Under Armour. Under Armour argued that if the parties had intended for “losses” to include internal employee time, they would have expressly stated that in the contract. The court took the opposite view that if Under Armour had intended to exclude such losses, it should have negotiated for that in the contract and ruled that internal time indeed was a compensable loss covered by the provision. That one word dispute cost Under Armour over $60,000 (not including its own attorney fees) and perfectly illustrates why, in the world of contracts, nothing should be brushed off as “standard”.
Manage Your Risk
The purpose of a contract is to set out the basic business arrangement between the parties and allocate risk between them. Often, however, people focus only on the former, figuring that the rest of the contract is just a matter of course and they can safely ignore the legalese. Some may not consult with an attorney because they fear slowing down the process, while others simply don’t want to spend the money.
Instead, they opt to rely on trust in the other party (because of a long-standing relationship or reputation) or on common law to protect them if something goes wrong. Many simply ignore the possibility that anything could go wrong at all.
Trust is good, but a good contract is better. A properly drafted and negotiated contract is likely to limit the potential for a future dispute or at least mitigate the impact if one does arise. While proceeding without a contract or simply signing someone else’s “standard” form is like stepping on the playing field without your under armor.
Be Safe, Not Sorry
Benjamin Franklin once said that “An ounce of prevention is worth a pound of cure.” My work is living proof of that wisdom. Remember, litigation can take months or years, while contract negotiation usually takes hours or days.
The bottom line is that making sure you have good contracts in place is a fundamental best practice that all businesses should follow. Of course, one contract policy does not fit all companies, but the general value proposition and awareness of the risks/benefits should be universal. Do not make the mistake of measuring success by how quickly things get done. Measure it by how well they get done.
[1] Under Armour, Inc. v. Ziger/Snead, LLP, No. 802 Sept. Term, 2016 (Md. Ct. Spec. App. April 27, 2017).
