What is the value of a contract (if you can't afford to sue anyway)?

A contract is just words on a page, or a screen, until someone decides to sue.  It’s a very useful tool to lay the ground rules of a business relationship, but keep in mind that nothing is set in stone.  You can deviate from the contract, and agree things on the side that were not included in the original contract.  The relationship itself is much more important than the words in the contract because the contract is worthless unless someone points to a term that was agreed, chooses to try to enforce it, and is willing to take legal action if someone doesn’t comply.  Many lawyers negotiate from the position of “what do I need to put in this contract WHEN (not IF) we go to court.”  This is not conducive to a good working relationship, and the reality is that very few disputes end up in court (as a percentage of contracts signed).  I’ve negotiated probably over a thousand contracts, and my experience is that a friendly, open and fair approach is usually the best way to have a good long term business relationship.

Keep in mind that there is also the potential that either you or someone else may deliberately breach the contract.  This usually comes after a risk evaluation considering the likelihood of getting sued and/or ruining a business relationship versus doing what you want (in breach of contract) at that point in time.  It happens.  And when it does, it’s usually big businesses acting the bully towards their smaller suppliers because they think they can (or clients, but it's generally small suppliers) .  Keep this in mind when negotiating because it can affect what your sticking points are.  Some things are easier to go to court for than others (for example, failure to pay an invoice makes for a very straightforward legal case).  And some breaches are more easily resolved through conversation than others (for example, a late payment is frustrating but solvable - but breaching confidentiality can ruin a business forever).

When I worked in the legal department of a large corporation, I experienced numerous small businesses trying to negotiate hard on intellectual property ownership.  They wanted ironclad guarantees that they would own any ideas and developments to their products, and they made the negotiation very difficult and long because of this.  Sometimes it came from fear of getting stung by a big company bully (and let me tell you, if a big company wants to be a bully, it won’t care what is in the contract).  Sometimes the approach came from inexperience and feeling like they have to negotiate hard to stay in the game.  The reality is that many of them lost opportunities as a result of these tactics because they delayed the start of the contract through extended negotiations or became so difficult that we ended up working with one of their competitors. 

Running my own small business, I had what seemed like an ironclad contract.  It was carefully written and negotiated over the course of over 6 months. When the contract finally got signed, my business partner and I went out for a celebration. Everything went great for about 5 months, and then, it all went downhill fast. The relationship with senior member

Stay practical, put the relationship first, and find the right balance.

Contracts are not just legal tools, no matter what lawyers think or do (lawyers are trained to think in a particular way, and it’s difficult for them to break away from that thinking pattern).  Contracts establish a relationship, and they can be very useful documents to come back to in order to remember what was agreed. This is especially useful after personnel changes, to allow the future teams to go back to the original goals and intentions.  Less legalese, and more business friendly language, helps a lot in this regard. And even large companies are starting to embrace this more practical approach to contracting.