Don't Get Burned by Contract Boilerplate
Contracts are as much about what is there as they are about what is missing. Most contracts have boilerplate language i.e. merger, notice, and arbitration provisions, are all common. Another provision that is usually lumped in with the boilerplate is indemnification. The indemnification provision should not be skimmed over lightly. The assignment of liability is tucked within this provision.
Entrepreneurs need to be careful when assuming nothing “bad” will happen when signing a contract. The future is unknown; knowing who is going to pay when “bad” happens is better than being stuck in a “bad” and now having to dispute over which party pays. A common strategy for new entrepreneurs is to research and copy contracts from industry “how-to” books. This can be even more risky than not having an indemnification provision at all.
When using industry sources make sure to look at the author. The viewpoint of the author can be categorized easily by finding out if the author is the service provider or the purchaser of the services. I had a client who had written a great indemnification provision into his service contract; that is if the client was the purchaser and not the provider. The provision allocated all risk to the client’s company and none to the purchaser, even for outcomes related to decisions purely made by the purchaser! Fortunately, nothing “bad” happened during the contract terms containing the client’s provision. The renewal contracts included the new indemnification provision; shifting as much risk as possible away from my client.
So, when drafting your own contracts be cautious about copying provisions from “how-to” books. If you cannot afford to have an attorney draft your contracts at the least I suggest having an attorney review your contracts, even form contracts; the value of minimizing risk is worth it. Do you have any suggestions regarding using business “how-to” books and other industry sources? Are there any books that you would recommend to new entrepreneurs?
Entrepreneurs need to be careful when assuming nothing “bad” will happen when signing a contract. The future is unknown; knowing who is going to pay when “bad” happens is better than being stuck in a “bad” and now having to dispute over which party pays. A common strategy for new entrepreneurs is to research and copy contracts from industry “how-to” books. This can be even more risky than not having an indemnification provision at all.
When using industry sources make sure to look at the author. The viewpoint of the author can be categorized easily by finding out if the author is the service provider or the purchaser of the services. I had a client who had written a great indemnification provision into his service contract; that is if the client was the purchaser and not the provider. The provision allocated all risk to the client’s company and none to the purchaser, even for outcomes related to decisions purely made by the purchaser! Fortunately, nothing “bad” happened during the contract terms containing the client’s provision. The renewal contracts included the new indemnification provision; shifting as much risk as possible away from my client.
So, when drafting your own contracts be cautious about copying provisions from “how-to” books. If you cannot afford to have an attorney draft your contracts at the least I suggest having an attorney review your contracts, even form contracts; the value of minimizing risk is worth it. Do you have any suggestions regarding using business “how-to” books and other industry sources? Are there any books that you would recommend to new entrepreneurs?
Posted by Jess Bailey at 4/12/2010 3:46 PM 
Categories: Indemnification, Contracts, Liability, New Business Owners
Tags: Boilerplate Contracts Indemnification Entrepreneur Liability New Business Owners
Categories: Indemnification, Contracts, Liability, New Business Owners
Tags: Boilerplate Contracts Indemnification Entrepreneur Liability New Business Owners
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