Best Practices

Spending money to save money

DIY legal documents can save you cash — then cost you dearly.

By Richard C. Koval, MPA, CMPE

Clients often contact me requesting a “sample contract.” Typically they are seeking an employment agreement or facility lease, both relatively clear-cut arrangements. But sometimes the request is for the full set of documents used for a co-ownership transaction or a purchase/sale transaction, which is far more complicated. The request is usually couched in terms of “I just want to see what the documents might look like.” In reality, many want a template they can modify for their own transactions.

I am not an attorney, so I refer clients to legal counsel to prepare the necessary documents for any transactions with which I’m assisting. Besides, I don’t have off-the-shelf samples available, and it would be unethical to disseminate the work product of others, so I cannot honor their requests. But those requests highlight larger concerns about the way some practices view legal documents and the false economies that arise when practices circumvent legal counsel.

IT’S ALL IN THE DETAILS

First, it’s helpful to understand the purposes of legal documents.

• Contract language enables the parties to confirm their understanding of the agreement based on their specific circumstances, reducing misinterpretation through mutually agreed language within the document.

• Contract provisions provide a road map for various processes required when unexpected events arise.

• The contract document provides a reference point for a judge or arbitrator in determining the original intent of the parties when disputes arise.

Writing your own agreement without the guidance of legal counsel is risky and provides a good example of being “penny-wise and pound-foolish.” Do-it-yourself agreements typically have numerous flaws including:

• Ambiguity of terms, leaving the reader unsure as to the provision’s intent. Note that a court will normally resolve ambiguity to the detriment of the drafting party on assumption that the writer had ample opportunity to protect his own interests when preparing the document.

• Conflicts between terms, with one provision stating one thing and another provision contradicting it. In these instances, the court will sometimes nullify the conflicting provisions altogether rather than try to reconcile them.

• Noncompliance with applicable laws or regulations, especially in regard to labor and tax issues and restrictive covenants. Although a court may modify the offending provision to bring it into compliance, it also could choose to eliminate the provision altogether.

• Detrimental contract terms having legal implications not fully understood by the parties. Unlike the informal language of a letter or email, contract language often has specific meaning, and a lay reader can easily overlook those implications.



• The absence of anyone to defend the contract terms effectively if the terms are later challenged. Engaging an attorney to defend a poorly constructed agreement is a losing proposition. But an agreement drafted by counsel comes with obligation (albeit at additional cost) to defend the language should litigation or arbitration arise.

NO ‘ONE-SIZE-FITS-ALL’

Several months ago, a client selling his practice was presented with a set of legal documents offered by a prospective buyer. The practice broker had prepared the documents; the broker was advising the buyer regarding the purchase. The broker used this set of documents in most of his transactions, but the broker’s attorney had written them with significant bias in favor of a seller, which was the side the broker typically represented. Inexplicably, the broker offered the same set of documents to his buyer client despite the terms clearly being detrimental to that client. Had the buyer instead retained legal counsel for that step, that problem would not have occurred.

In other instances, I’ve seen employment agreements with provisions that tried to impose restrictive covenants in states where such covenants are not enforceable, eliminate unpaid vacation upon termination in states where such leave must be paid and impose restrictions on disability that are contrary to law. In those instances, the practices were likely comforted by the presence of those provisions, not realizing they actually were meaningless.

HOW TO KEEP YOUR LEGAL TAB DOWN

Most of the objections I hear from clients about legal counsel focus on the costs for such services and the perceived value of such work. Similar to physicians, legal services are measured by time spent on the clients’ behalf and, in fairness, your attorney should be compensated appropriately. Still, you can limit your legal bills by taking the following steps:

1. Communicate clearly with your attorney regarding your expected outcome from his work, including the budget involved. If all you need is a simple employment agreement, be sure counsel understands that.

2. Unless the transaction requires the expertise of a partner-level attorney in the firm, consider requesting the work be done by an associate at a lower billing rate. Ultimately, the firm will retain responsibility for the quality of its work regardless of who prepares the contract itself.

3. Work with counsel to establish a workable template for repetitive documents such as employment agreements, minimizing the need for customization when subsequent transactions arise.

4. Use your attorney’s time wisely. Rather than engage in daily email or phone calls whenever a question strikes you, consolidate those issues into a single contact with your attorney.

You should view legal counsel as a resource and partner as you navigate the legal universe. Saving money by avoiding legal costs can seem thrifty, but in many cases, it is simply foolish. Use appropriate judgment to spend wisely and effectively, reaching a balance between cost and value. OM

Richard C. Koval, MPA, CMPE is a principal and senior consultant with BSM Consulting, an internationally recognized health-care consulting firm headquartered in Incline Village, Nev., and Scottsdale, Ariz. For more information about the author, BSM Consulting, or content/resources discussed in this article, please visit www.BSMconsulting.com.