Assistance for the “Street Lawyer”

For much of my young adult life, I had a dream of becoming an attorney. I took debate in high school and several classes in college to prepare for that career. It was during those years that I realized it takes a very special person with a unique personality to actually be an attorney, and I am not that individual. I did, however, gain a great amount of respect for attorneys. So now, years later, I find myself reading customer contracts that are more complicated than my daughter’s dating life. I have become a “street lawyer” so to speak. That is a very scary thought.

Unfortunately, a few months ago, our company learned the hard way that a poorly reviewed contract has the potential to cause severe harm to a business. Of course, most of you already know this, right? After all, we have talked about this topic for many years. The problem lies in the complacency of most component manufacturers when it comes to reviewing these very important documents. We really don’t have the time to comb through a legal dictionary and decipher the terminology within a contract. So there may be times when we agree to certain terms and conditions that we really don’t understand. If you have ever done this, don’t feel bad. I can assure you there are more of us who have agreed to terms we didn’t fully understand than those who haven’t. I can see our SBCA legal counsel Kent Pagel shaking his head right now.

At our company, most contracts are first reviewed by a member of our upper management team. If that person doesn’t understand a paragraph, the entire contract is sent to our legal team for review. In the case that got us into trouble, we excluded “Product A,” which most CMs do not provide, from our original quote and sent the document over for legal review. It came back marked up and was returned to our customer, who then, unbelievably, signed it with few requested changes. What I did not pay attention to was in very tiny print mixed in with several paragraphs relating to products supplied. You guessed it. “Product A” was contracted to be provided. After many, many meetings, legal fees and hard feelings, our customer finally agreed to pay most of the costs associated with “Product A.” This could have turned out much worse for us. We were saved by grace! However, this is not the way we prefer to do business.

How can we avoid situations like this? Having an attorney review contracts is a great way to stay out of trouble, but it can also be very costly. SBCA is another great source for help. The ORisk program was developed to help CMs in this very area and includes modules that focus on contracts. With the economy hurting over the last few years, ORisk has been put on the back burner for future development. At a recent board meeting, several members agreed that it was time to start working on this program again. Of course, it is already a great program, but Kent Pagel is far from done covering some very important topics. There will be more to come! In the meantime, see Kent’s article on fleet safety and risk management in this issue.

As our customers put more demands on us with largely one-sided contracts, it is vital to our industry that we wake up and protect ourselves. ORisk is a perfect place to start and money well spent. In addition, if you have the means to get legal assistance with contracts that are just too complicated, please do so. It could save your business from possible balance sheet disaster.

Another word of advice is to save a copy of contracts that have been reviewed and marked up. Much of the wording is the same. It will save you time and money if you already have reviewed documents, especially with purchase orders, from repeat customers. But remember to not get complacent in your review. The contract that got us into trouble was from a repeat customer who decided to change the purchase order wording from contract to contract. Even after a legal review, take your time to go back over it. This could have saved us a lot of grief and relationship damage on both sides.

Finally, it’s okay that you’re not an attorney. Be honest with yourself and don’t be afraid to say that you don’t understand something in a contract, and if this is the case, get legal help. Of course, there will always be times when you will have to bend a little on certain terms and conditions just to get a job, but don’t make deals that you cannot afford to live with. Your business, like ours, is much too valuable to throw away by rushing through a purchase order and committing to terms and conditions that just aren’t fair!