Contracts: Handshake or Handcuffs?

So while the ‘handcuffs’ approach scares many people away from using written contracts, they also know deep down that the alternative ‘handshake’ doesn’t afford them the protection they really need.
So, is there an alternative approach? Margaret Burrell, a member of the Law Society and managing director of Annesley Business Consulting, suggests something which is neither a handshake nor a handcuff, but which allows both parties to sleep soundly at night? She calls it the ‘warm blanket’ approach.
If you’re wearing handcuffs, there’s no doubt that the other party is in charge – you have been forced into a situation you are not comfortable with and you feel restricted and resentful. On the other hand, when relying on a handshake, while you may trust the other party, there is always that nagging doubt that your recollection of what was agreed might not be the same as theirs, or that they may expect too much of you. Either way, it’s a sure sign of danger ahead.
Bring in the warm blanket. 
The ‘warm blanket’ approach involves looking at the real commercial risks that you face, bringing them out into the open, and dealing with them up-front in a clear and open manner. It is a more collaborative, less combative, approach to contracts than the handcuffs approach, but much more business-like and considerably less open to misunderstandings than the handshake approach. It is also a very pragmatic and cost-effective solution – hence the resemblance to a large woollen blanket: strong yet soft, and (importantly), designed to keep both parties warm.
When disputes do occur about contracts it’s rarely some intricate legal issue (whether ‘he’ includes ‘she’ and ‘they’, or exactly what constitutes ‘force majeure’). Instead it is nearly always about a more practical problem – like the timing, or exactly what was included in the price?
Focusing upon the issues which people really fall out about is the key to preventing disputes arising, and this means ensuring that everyone understands the boundaries of the arrangement by creating contracts with clarity. Drafting contracts which are clear (so that everyone understands them) and concise (so that the size and complexity of the document is proportionate to the risk involved in the deal), not only reduces the likelihood of future disputes, but also saves time, money, and a great deal of hassle.
No-one (except a litigation lawyer) wants to go to court, so doesn’t it make more sense to concentrate your efforts on preventing disputes rather than resolving them?
Especially important for new businesses, the creation of clear and concise contracts is essential in helping you develop your brand. The role of a contract not only sets up the relationship from the outset, it creates a basis for how your company is viewed. Where an excellent rapport is created with one company, this can be a spring board for future ‘good business karma’ within an industry.
Furthermore, with global corporate agreements becoming widely accepted as a potential expectation for growing businesses, it is important to create secure terms which everyone can understand, appreciate and exercise across all borders. Contracts should be a tool to unite and uplift all parties involved; they should act as a move toward progression – not act as handcuffs that bind.
Both handcuffs and handshakes can ruin a good business relationship: the one is too tight and the other too loose. However, adopting a fair and collaborative approach using contracts with clarity is one of the easiest ways to maintain and improve those relationships.
Warm blankets not only provide comfort for children – they can do the same for businesses too.
You can follow Margaret on Twitter: @margaretburrell

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