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Should you take a “carrot and stick” approach to your contracts?

On Behalf of | Oct 24, 2022 | Business And Corporate Law

Negotiating an effective business contract can be a complicated experience. Contracts are designed to both clarify everyone’s rights and obligations, but they’re also tools that can create a rapport, minimize conflicts and resolve disputes.

With that in mind, taking a “carrot and stick” approach to your own contracts may help you not only protect your business from harm but build better relationships with your suppliers, vendors and more.

Use contingency agreements in your contracts

Contingency clauses are a great way to make sure that everybody is properly motivated to meet their end of the bargain – and they can function either as a reward or a punishment. The best contingency clauses take a “what if” approach that combines both.

For example, say that you have your doubts that a vendor can meet your performance demands by a specific date. You can negotiate a contingency clause that rewards the vendor with a bonus for every day they come in ahead of the deadline. In return, the vendor may agree that if they do fall behind, they will lower their overall rates or accept a penalty against their fees for every day they are late.

Obviously, whatever benefits you negotiate should be attractive to both parties – and the penalties should be equally weighty.

Consider a dispute prevention clause, as well

A dispute prevention clause is merely an agreement between the parties that they will meet or communicate regularly, jointly monitor the progress of their agreement and meet with mediators to resolve minor disputes before they become major ones.

Dispute prevention clauses may sound simple, but they’re incredibly effective. They keep people talking, and that can prevent misunderstandings and hard feelings, which is helpful whenever you want to build on a business relationship for the future.

These days, contracts are the lifeblood of a good business agreement. They also serve as the foundation for solid long-term relationships with other businesses and your clients. Experienced legal guidance can help you avoid the problems that come with poorly drafted agreements.