As a new year gets started, people often take time to review, renew, and refresh their perspectives. In their personal life, someone might write a new year's resolution, make grand plans, or start a new exercise routine. Company leadership teams might take a look at the policies, processes, and procedures they have in place for contract negotiations. TTE recently talked with Jim Interlandi, founder and owner of Virtual General Counsel, to get his perspective on what helps make an effective contract and contract negotiation process. With over 15 years as a business-focused attorney, Interlandi has represented clients, including TTE, on both sides of negotiating contracts.

The Big Picture   

Regardless of whether you are the client or the vendor in the deal, put together a contract that addresses both sides. Avoiding one-sided contracts will go a long way to establishing credibility and serious engagement in the process, according to Interlandi. Also, streamline the contract and make it easy reading whenever possible. One technique Interlandi has been successful with for some industries and businesses is changing the format and order of information in the contract. For example, he might put the business terms, the pricing, and the service or product details first, and then incorporate the legal terms at the end of the contract or simply attach them as terms and conditions to the contract.
     Before you even start with a contract, though, there is one step Interlandi feels is a useful tool not just for establishing a potential client's credit history, but also for helping contract and client relationships go well in the long run, at least from a collection standpoint. "Manage credit up front. It's much cheaper than collecting," he says. "Don't just rely on the contract and payments in the rear to handle that." Two ways to do that are to: 1) get three credit references and a bank contract when you initially take on a new client, and 2) get a business credit report.

Contract Language

     When writing and reviewing contracts, look not only at the big picture but also at the details. The clearer the language is, the more beneficial the contract is for both sides. Some specific areas to evaluate language clarity in are: past due account collection; termination rights; limits of liability; delinquent account collection cost responsibility; and transaction tax payment responsibility. In regards to termination rights, they should be consistent with your business and resource allocation, according to Interlandi. Written clarification on delinquent account collection cost responsibility can help give companies direction as they prioritize and allocate resources during a tough financial time, and it can also give a vendor more standing as they try to collect the debt. And for transaction payment tax responsibility, just like a sales tax, ideally that would be identified as the purchasers (or clients) responsibility, according to Interlandi. 

The Process

     Once you do have a contract in hand, allocate time to the contract itself, the negotiation process, and communication with your attorney. "Create a significant amount of time for you and your advisors to review the contract and respond accordingly," says Interlandi. "At the very least, scan what you're sending to your lawyer or what your lawyer sent to you that you're now sending to the other side." Not just so that you understand and agree with it, but also to open communication with your attorney and give your attorney direction on things that are important to you. Some of the benefits of maintaining open communication with your attorney are:

• it helps them understand you, your company, and your business
• it facilitates a better working relationship
• it usually results in clearer, better contracts

     That open communication starts with allocating time, and continues with active participation and a right perspective. "Don't assume that just because you've had some conversations with your lawyer that the contract is 100% accurate. It's a process. It's an investment you make in your lawyer, and their understanding of you," says Interlandi. Active participation includes asking great questions - questions that stay focused on productive conversation and are relevant to closing a deal.  

Trends

     Interlandi sees two areas getting more attention in 2012: Data Privacy and Security, and a Gross Receipt Tax.  

• Data Privacy and Security: "There's a coming wave of regulations that will be touching more and more businesses that has a business and technology component," says Interlandi. "More and more states are requiring various things of businesses to maintain data privacy and security. It tends to be in areas of consumer data, but it can also be in the business-to-business context."      
• Gross Receipt Tax: Because states are strapped for cash, more and more of them are starting to assess taxes not just on goods but also on services rendered. "Several states now have what's called a Gross Receipt Tax," says Interlandi. "For example, if you're a consultant and you ordinarily would never think that your service is taxed when it comes to what you provide to your client, they're starting to consider that." While some states have created (or are in the process of creating) new laws for this, other states are simply finding ways to use what's already on the books. And, some states have instituted similar concepts under different names.  

Jim Interlandi is the founder and owner of Virtual General Counsel, a boutique firm specializing in the representation of startup and growing technology-oriented businesses. Providing outside general counsel, Interlandi works as a part-time member of a client's management team to provide or coordinate all law services. Prior to founding his own company in 1999, Interlandi worked for a variety of businesses and law firms, including Sidley & Austin. Interlandi received a B.A. in English Literature from Carleton College in 1989 and a J.D., magna cum laude, from the University of Minnesota Law School in 1994. He is currently an Adjunct Professor at Chicago-Kent Law School.