Infotech and the Law: Understanding contracts: It's not as hard as you think
- By Devon Hewitt
- May 22, 2005
Contracts are essential in business. But most people in business see contracts as documents containing language and terms that only a lawyer can interpret.
Not so. Sophisticated transactions typically also require sophisticated advisors, including lawyers; but if you know what to look for, contracts can make for easy reading.
Take the example of a buyer and a seller of gizmos. The buyer wants to buy and the seller wants to sell gizmos. They agree on a price and delivery date for the gizmos. The buyer and seller want to obligate each other to buy and sell the gizmos at the agreed upon price and schedule. They enter into a contract.
What should they make sure is reflected in the contract?
The buyer's primary concern is that it will be charged the agreed upon price for the gizmo and that it will get the gizmos by the agreed upon time. The buyer therefore should read the pricing and delivery sections of the contract first. Is the right price reflected in the contract? Are there any provisions allowing the seller to increase the price over time? Are there discounts for buying more gizmos than initially anticipated?
As for ensuring delivery of the gizmos on schedule, the buyer should confirm that the place and time of delivery is clearly identified in the contract.
If the timing of the delivery is of critical importance to the buyer, extra protection such as penalties for late delivery, requiring a certain method of delivery (plane rather than train), or a statement saying that time is of the essence can be inserted in the contract.
Other than price and delivery schedule, the only other major concern the buyer will have is that it will get the gizmo identified at the time the deal was made. The buyer wants to know that it will get quality gizmos, without significant imperfections or problems. The contract, therefore, should specifically describe the characteristics of the gizmo desired by the buyer.
Thus, a buyer looking at a contract should look for issues addressing price, schedule and quality.
The seller has different concerns. The seller wants to know that it will be paid the agreed upon price for the gizmos, preferably sooner rather than later. More importantly, the seller wants to ensure that the transaction does not include any hidden costs.
The seller therefore will also be interested in the price provisions of the contract and whether the provisions specify that the buyer is responsible for delivery charges, be it plane or train, and taxes in addition to the price per gizmo.
Uncovering the hidden costs is a little harder. The seller should review the contract for any penalty provisions.
The seller should also look at any provisions for the quality of the gizmos to be delivered to ensure that the price quoted and type of gizmo promised correspond to the description of the gizmo identified in the contract.
Finally, the seller should look for any provisions in which it is making promises or undertaking obligations in addition to those with respect to price, delivery and quality that could increase its costs. For example, is the seller required to take out insurance? Are there special packaging or labeling requirements?
Seems simplistic, I know. But believe it or not, these are the first questions lawyers ask themselves when reviewing a contract for a client, whether the contract concerns complex technology, furniture, professional services or gizmos.
Devon Hewitt is a partner of Government Practices at Pillsbury Winthrop Shaw Pittman LLP in McLean, Va. She can be reached at firstname.lastname@example.org.