Sarah chase

Chief Business Officer, Horse Lifestyle Network

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When your sales/business agreement involves specific "good faith" practices, what checks and balances do you use to ensure compliance/trust?

Some business agreements are still based upon the principle of a "handshake." But, if you're with a new company that's untested and/or if you're attempting to re-establish a good brand name after a PR fallout ... a handshake agreement (i.e. one that's based totally on trust, reputation and personal accountability) is out of the question. Yet, there are still business situations that are based entirely on "good faith." As such, what might you include in an Agreement/Memorandum of Understanding that set the ground rules that will set the parameters for good faith? In essence ... what are good faith checks and balances?

  • Feb 24 2011: Every business transaction is based on good faith, so that's not the issue.

    I don't think generic advice will be of much use to you here, as so muchof what you include in a contract depends on the nature of the work/service/product/whatever. The rule of thumb I use is to list all the possible things that might go wrong, then list the reasons they might go wrong, then develop a simple contract around what happens if things go well (terms, payment schedules, etc.) and what happens if things go off the rails (who is responsible for what, who does what if such-and-such happens, etc.). For anything under about $100,000, I wouldn't bother with a lawyer, but I would certainly want to have my wording checked by one or two knowledgeable business people before I signed anything.

    BTW, I partly disagree with Harald. In the oil and gas business, multi-million contracts are being entered into on a handshake all the time. Sure, they get documented after the fact, but the work goes ahead regardless.
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    Feb 24 2011: I used to work my whole life for multinational companies and as far as I can remember, anything, that had importance to the business was put in formal contracts. That was already necessary for the purpose of documentation.
    Maybe in small companies you can make agreements without formalities, but in big companies that is virtually impossible and would quickly lead to chaos.
    However, that said, it doesn't mean that each and every communication and agreement with your customer must be checked by the legal department. I think it's a judgment call as when to involve a lawyer, or not, but at least anything of importance should be put in writing.