3 Reasons Contracts Should be Win-Win
In my practice I have always advocated that contracts should be a win-win, i.e., they should provide equivalent benefits to both parties. Here are three (of many) reasons why I think that’s so.
- Failure of Purpose. If you are doing contracts with companies, whether customer, suppliers, strategic allies, or almost any other type of contract, the aim should be so that you can work together and both benefit from the arrangement. If that is not so, why are you doing business with that other party? If you insist on “winning big” in the contract negotiation, are you showing good business sense or hubris? Good business sense says you must protect yourself, but that the contractual relationship should demonstrate good faith and the fact that you will be a good partner in the endeavor.
- Wasting Time. If you send out a contract that is very one-sided, with unilateral onerous provisions for the other party, it is often a waste of time and resources for both parties. The chances of the other party
missing the harsh terms is pretty low, and the draft is going to be rejected out of hand or sent back well marked up. And the other party may have been forced to spend a lot more money to have its reply prepared. Is that going to improve the dynamics between the companies or damage the relationship?
- Ethics and Perceptions. Some people believe businesses should be ethical in their behavior. Actually, a lot people believe it and I am one of them. When a client of mine receives an NDA with hugely one-sided and onerous terms, I sometimes advise them not to sign and to end the relationship right there. The other party had assumed my client was stupid and would not read the document, that it might be able to “sneak” the terrible provisions through anyway, or that it is the bigger player and the smaller company has to give in, so take every advantage. Even if any of those is ethical (I obviously think not), the party being taken advantage of will be on the defensive from the outset and will not trust the other party’s ethics. That is not a recipe for a successful business relationship of any duration.
The presentation of a one-sided contract engenders mistrust and creates doubts about doing business with the drafting company. Even if such a contract gets signed, the relationship is unlikely to work smoothly or be long lasting.