A few weeks ago, we received a significant (but not huge, think low four figures) initial advertising order for one of our publications from a large, well-established and respected US company. Nice sale . . . but . . .
Last week, the company sent our sales representative its standard boilerplate contract. It had 38 pages, and provisions for “tracking” so our “legal department” could note changes.
We’ve done business for 30 years with informal insertion orders, phone orders, and (at most) simple one page contracts. This simplicity makes sense. We offer a service (generally advertising in our publications — and now websites and eletters), deliver it, and expect to be paid. However, if things go wrong — if we fail to deliver the promised service — there are no hard feelings; we tear up the invoice.
A few customers don’t complete the simple sign back procedures and so we don’t have a legally enforceable contract. These end up in the “write off” file. Thankfully that isn’t a great problem because of our two-price invoice system (clearly explained at the outset), which sets a high premium on prompt payment. As we budget revenue at the lower prompt payment rate, the rare write-offs are more than offset by the premiums paid by late-paying advertisers. (This results in a wonderful accounting anomaly; our “bad debt” adjustment ends up flowing as a positive number on the balance sheet.)
But what do we do about this rather massive contract. My conclusion: Unless the company just sets this as a throw-away and doesn’t really expect us to sign it, we’ll have to forgo the business. A loss, unfortunately, but one which we may need to accept.
In practice, the overly strong contract language issue has become a major concern for contractors, subtrades and suppliers, as upstream owners and management businesses (with help from overly aggressive legal departments) design the contract wording to be one-sided and so risk adverse that it requires major compliance and management costs (if you can even begin to fulfill the requirements.)
If a subtrade or supplier signs one of these contracts, the risk to the company’s viability can be incredible — and I fear deadly, if anything goes wrong. The result: Business doors are closed to smaller companies, or (more dangerously) the companies accept the wording and hope for the best.
There are no easy answers to these challenges. In some cases, associations can be helpful because they can speak independently of individual contractors and argue the case for renegotiating onerous terms. (Associations may also have group insurance and compliance systems which help reduce the contract wording stress and individual business liability.)
In others, businesses need to make sometimes hard decisions to forgo revenue because the risk of noncompliance is too great. That’s sad, but it is a hard fact of business life.