By Andrew Magowan
Summary
1. Contract disputes are a major burden for SMEs – 90% of small and medium enterprises struggle with contract performance or renewal issues, and “contract disputes” top the list of business owners’ biggest legal worries for the next two years.
2. Litigation is inefficient and should be avoided – Small claims now take 54 weeks to reach trial (up from 24 weeks in 2010), with 653,000 outstanding cases as of March 2024, making litigation expensive, stressful, and time-consuming rather than a viable business strategy.
3. Focus on relationship-building through smart contract management – Success comes from win-win approaches, transparent negotiations, and including contract management clauses that establish regular check-ins between parties to address issues before they escalate into disputes.
Running a growing business is tough enough without having to worry about contracts going sideways. But here’s the thing: according to a recent business survey we conducted, SMEs are drowning in contract-related challenges. Contract management presents a significant burden for many small and medium enterprises, with 90% of respondents citing either contract performance or contract renewal as their primary concern.
What’s even more telling? When we asked business owners about their biggest legal worry for the next two years, “contract disputes” topped the list. That tells you everything you need to know about how much this stuff keeps entrepreneurs awake at night.
I’m here to make the case that adopting the right approach to contracts, combined with getting proper help from the outset – from a business-focused in-house lawyer who actually understands your world – can dramatically increase your chances of building successful, mutually beneficial relationships whilst keeping you well clear of the litigation minefield.
Why getting contracts right matters: the litigation nightmare
Let me paint you a picture of what happens when contracts go wrong. It takes 54 weeks for small claims to go to trial these days. That’s up by 30 weeks since 2010, despite there being 2,000 fewer cases. For more complex, higher-value disputes, you’re looking at 80 weeks. That’s more than a year and a half just to reach trial.
And here’s the kicker: there are currently 653,000 outstanding cases as of March 2024. Yes, you read that right.
So let me be blunt about what that means for businesses. Litigation is not only very expensive. It’s not only highly stressful. It’s not only completely uncertain (they should call them casinos, not courts). But now it takes absolutely ages too.
When you’re running an ambitious business with plenty of opportunities where you could be putting your time, money and effort, why on earth would you rely on suing people as the foundation of your business dealings?
Litigation is stupid. Resist the temptation. Instead, put your time, efforts, energies and money into the things that help foster and maintain your long-term trading relationships and stop them going wrong in the first place. Because that’s where long-term success actually lies.
Smart contract drafting: it's not about winning
Time and energy are as scarce as cash to an ambitious, growing business. So don’t waste your precious resources demanding things you wouldn’t accept if you were in the other person’s shoes. Especially as you’ll appear completely unreasonable if you do so.
Instead, grab hold of the business opportunity in front of you.
Last I looked, there was no law that said everything has to be negotiated and argued over. Enduring business success isn’t a win/lose game. Win/win beats win/lose in the long run every single time, because long-term business success comes from fruitful long-term relationships.
Focus on honesty about what each side wants and what each side needs to do. Be transparent about what you and your business partner are getting from the deal. Avoid overcomplicating the process. There’s no need to be adversarial from the get-go.
Get help from a pragmatic, business-orientated lawyer who knows your risk appetite and ultimate strategy, rather than some bulldog who thinks every negotiation is a power play. Trust me, I’ve seen the difference it makes.
The secret sauce: contract management clauses
It took me more than 20 years to truly understand the importance of one particular clause in agreements. I used to think it was a statement of the obvious – a bit of unnecessary flannel. Because surely everyone’s doing this anyway as a matter of course, right?
Turns out, most aren’t. And that’s a massive missed opportunity.
The clause I’m talking about? The contract management clause. You know, the one that says something like:
- Person A and Person B will be the key representatives of each party;
- They’ll meet regularly to discuss the contract, including performance since the last meeting and any issues that may have cropped up.
This simple clause is absolutely key to identifying any little niggles and concerns promptly so they can be dealt with before they become bigger problems. It helps you avoid the burnt cost, time, effort and goodwill that comes with disputes and threatened or actual litigation.
Most importantly, it enables both sides to continue working together positively towards the same shared goal for years to come. Because that’s what makes for genuine long-term business success.
So, with any contract that crosses your desk going forward, make sure there’s a proper contract management clause in there. A fractional General Counsel can help you get this right.
The bottom line
Contracts affect all businesses, whether you like it or not. Getting them right from the start saves you time, money and a whole lot of heartache down the line.
A good in-house lawyer can represent your interests properly, make sure you’re applying the right approach and help you build the kind of relationships that actually drive business growth. And here’s the thing: you can still get access to this level of support even if you’re an SME, through fractional general counsel arrangements.
It’s worth investing early in the right support. Because when it comes to contracts, a stitch in time really does save nine.
If you want someone who can cut through the complexity and bring a simpler, smarter approach to legal support to help turbocharge your business, get in touch for a chat. I’d be happy to help.
Call on 020 3503 8603
Email on andrew.magowan@thelegaldirector.co.uk or info@thelegaldirector.co.uk
