Contract tricks and traps to avoid

Whenever you sign a purchase, lease, or service contract, it's important to read and understand the terms of the contract. In most cases, companies you're dealing with aren't trying to rip you off - but it's easy for misunderstandings to emerge. The most common source of contract problems is that the parties each see some aspect of the transaction differently, so careful reading and negotiating changes is important.

Of course, some companies will unscrupulously try to get a little extra money out of you by using some of the tricks described below. Don't be afraid to request edits before signing a contract. And as always, lengthy or complicated contracts should be reviewed by a lawyer once they're finalized - and before they're signed.

Here are some contract traps to avoid.

Unfavorable renewal terms

Automatic renewals are fairly common and can make for a smooth ongoing relationship between buyer and supplier. However, they can also cause problems, especially if there is a very narrow window when you can cancel the contract. Consider asking the vendor to omit automatic renewals for the first term of your agreement to let both parties get accustomed to the relationship. Also, make sure that at the end of each term, either party has the ability to end the relationship, and ask if the cancellation period can be 60 or 90 days instead of 30.

Early cancellation fees are common - if you sign a two-year agreement, it's fair for the supplier to penalize you for canceling after a year and a half. Just make sure the specific penalties are detailed in the contract in case it comes up.

Unusual calendars

Only in the intimidating legal language of contracts could a month be defined as 28 days, or a year as 13 months. There's usually a method behind the madness – these alternative calendars may be legitimately included to try to simplify costs or schedules. Avoid them: stick to the same calendar the rest of the world uses.

Vague substitution clauses

The more details spelled out in your contract, the better. This applies to all aspects of the contract: costs, terms, responsibilities, materials, and approvals. Phrases like "or similar materials" can be dangerous. If some components haven't been specified when the contract is signed, that's fine, just make sure that you have final approval as decisions are made.

Overly broad language

As you read the fine print of a contract, you may come across sections or sentences that simply don't apply to your purchase. This is because many companies reuse similar sections across many contracts. While it's a legitimate cost-saving method – so they don't have to go back to the lawyers for every contract – including extra sections or language that simply isn't relevant to your situation can create an opening for multiple interpretations. The best approach is to simply remove any references that aren't germane to your deal.

Incomplete cost listings

Contract-based purchases often include multiple charges, so it's easy to overlook some costs. Make sure that all applicable charges are included:

• delivery, setup, and integration
• consulting
• maintenance, repairs, and upgrades
• warranties and guarantees
• support and service levels
• annual fees

Don't accept "reasonable delivery charges" or similarly vague constructions: have the vendor include exact charges or rates for each item listed. Some vendors will demand pricing flexibility in case their costs rise – limit those types of changes to contract renewal time.

Getting out

It can seem awkward to plan for the end of a relationship when it's just getting started, but it is a good idea. It's essential for business services like hosted applications, call centers, and other professional services: in any situation where the vendor has access to your critical business data, make sure the contract specifies how the vendor will return that information to you, and how quickly they have to do it. In other cases, look for clauses that specify costs and timetables for removing equipment at the end of a contract.

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