January 2014

The Cost of Ignorance Can Be Significant

Many of my clients are small and mid-sized businesses, and a recent conversation with one of them brought home once again why I encourage my clients to have any and all agreements/contracts reviewed by an attorney. I had the same “piinacle” speech (with two i’s) with this company that I had with a different client last summer. “P.I.I.N.A.C.L.E.” is an acronym I use to explain to clients that, while everything in an agreement is important, there are certain clauses that are more important than others, and these key clauses need to be reviewed carefully with the company’s attorney.

For example, all agreements/contracts contain language that states that any Notices will be in writing and the language in the agreement general goes on to say how it will be transmitted. Typically it will allow delivery by hand, require the notice to be sent by certified mail, and even by facsimile. Some agreements will even stipulate the address to which any Notices are to be sent.

At first glance the article or clause in the agreement on the subject of Notices is fairly innocuous and straightforward, but within this deceptively benign language are a couple of unpleasant pitfalls. The reason this clause traps the unwary is due to the fact that a number of other clauses are linked to this clause one important way. These other clauses have a clock that is triggered by certain events, and once that clock starts running, its impact on both time and money is inevitable. At this point it is not a question of if, but a matter of degree.

This is the “N” in the acronym referenced above and its importance can’t be overstated. It is important because many issues come across a company’s threshold every day that are routine or expected, but some will not be routine and they will not always be labeled or identified as falling under the Notice provisions of the agreement/contract.

This brings me back to the question of when did that happen? The simple fact is that not all adverse events are communicated by one party to the other in the manner described here. Sometimes those events are communicated along with other more routine matters, and the significance of the event is missed, but this does not change the fact that an event of consequence was communicated, and the clock is now running.

While there is no single answer that will prevent information about significant event flying under the radar, so to speak, there are ways to mitigate the risks of not knowing something in a timely manner. It starts by setting up logs be they for correspondence, drawings, technical documents, etc., and using them consistently over time. They are an important first step in documenting what is being transmitted to the company, and tracking any responses required. There are other steps that can be taken, but these will be discussed in other letters.

Thought for the day:

Being nice is not the answer: In negotiating an Agreement, being nice does not produce a win-win agreement. It will often result in a win-lose agreement. See Getting to Yes by Roger Fisher and William Ury.

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