Cutting Legal Costs by Investing in Good Templates
In a recent blogpost, AdamsDrafting suggested that the recession should prompt companies to look at overhauling their contract template process.
[A] recession should provide a greater incentive for a company to do something about the considerable amounts of time and money that it’s wasting due to its mediocre templates and primitive contract process.
I completely agree that it makes sense for companies–regardless of their size–to consider investing in better templates during a recession. In fact, I would argue that spending a little money to improve bad templates can save companies of all sizes big bucks in legal expenses.
You are probably thinking: how does investing in templates save me in legal fees, when I am going to have to hire a lawyer to do the work?
Well, let me explain: Having good, carefully drafted templates saves you money at the negotiation/drafting stage of a deal because you start from a sound legal framework that is based upon what you already know you need out of the deal. While some third parties will sign that template without trying to negotiate it, and others will try to make a number of changes to the draft, the fact remains that you will start the negotiation from a sound legal framework that reflects your company’s needs. If you are able to start a negotiation with a well-drafted template, your company will at most only require legal help to review the proposed changes–the attorney will not need to review any other part of the document. Since most attorneys bill by the hour, this can reduce your legal costs in the short term significantly, and also allow you to rely on someone other than an attorney to handle your negotiations.
In addition to saving you money at the negotiation/drafting stages of a deal, having well-drafted templates can save you money by ensuring that your company’s legal risks are minimized to the extent possible in every contract. How does this work? Well, you can standardize your company’s contractual language dealing with liabilities such as breach of contract, indemnification, limitation of liability, etc. in every contract, and thereby lessen the risk that contracts get signed with language which does not adequately protect your company with respect to its liabilities.
In case you are thinking that your company is too small to worry about liabilities and that perhaps liabilities are not the key concern when you are trying to just survive in a bad economy, I would argue that in a bad economy you do not want to conduct business–regardless of the size of your company–without thinking about liabilities.
Why is this?
Well, a bad economy is exactly the time when you are most likely to run into breached contracts, as many companies will simply experience shortfalls in cash. The simple reality is that the companies with the best contracts are more likely to be paid under those contracts in a bad economy, as companies short of cash will prioritize their payments and pay the bills which they feel they have to pay first. Well-drafted contracts are more easily enforced against a breaching party, so a party short on cash is probably going to meet its obligations under that contract first. Not getting paid under a contract is painful for a business at any size. Thus, it would be prudent for companies of any size to pay particular attention to liability clauses in their contracts–particularly during a bad economy.
Likewise, a bad economy is exactly the time when your business could be most at risk for lawsuits. Cash flow could be tight in your business, and you could fall behind in your bills, simply because you yourself are not paid under other contracts. Similarly, cash flow could be tight on the other side, and the other side could be looking for ways to get out of contracts they deem “expensive” or to even sue another company just to bring in additional income to their business. Regardless of the size of your business, a lawsuit will always be expensive in terms of legal expenses, and to the extent you can minimize your risks in this area, your business will be well-served, particularly during a bad economy, when the last thing you will probably want to be doing is spending limited financial resources on legal expenses for a litigation.
All in all, investing in good legal templates is an excellent move in good times and bad, and can save companies a lot of money when it comes to legal costs. However, in a bad economy, investing in good templates can be particularly important because it reduces a company’s need for outside counsel and limits the likelihood that its contracts will go unpaid or end up in litigation. Spending a little cash on your company’s templates right now could prove to be a very beneficial investment for your company–even before the recession ends and the economy picks back up. In fact, depending on the nature of your business, whether or not you choose to make the investment could end up being the deciding factor as to whether or not your company is still in business after the recession.