Agreements are challenging—particularly when they involve the future, and we might all disagree about what that future entails. You might think you’re going to ship your product on time, free of defects, and revolutionize the market. Your customer might think you’re going to deliver a hobbled-together prototype six months late. Of course, you’re right. But just in case … if you’re going to make plans and agreements for the future, you need to take into account a future where everyone thinks something a bit different is going to happen. You need tools for uncertainty! And we have these tools! They’re called contingency clauses.
Bet on external conditions—things you can’t control
When you’re setting up an agreement, consider using contingency clauses. A contingency clause is a bet you make about events that will unfold in the future. Contingency clauses keep both you and the other person accountable for your decisions, opinions, and actions. They also give you a way to value the future differently, so you each walk away with a deal that you believe is a good one given what you believe about the future. Of course, one—or maybe both—of you will be proven to be wrong, but you’ll be happy right up until the moment that your flying car engine cuts out at 30,000 feet. And that’s what’s important, right?
One of your friends has been dying to eat at Poke Bowl Express, the Japanese ramen restaurant that opened last week. They say that the ramen makes your dreams come true. While it might be fun to have last night’s dream about Warren Buffett, Kim Kardashian, and Newt Gingrich come true, it might also usher in the apocalypse. Plus, you think the line will be way too long, and it will be at least an hour’s wait. But your friend disagrees and insists that after a week, the line must have died down Your friend craves dream-infused ramen, so they won’t go anywhere else. You both sit inside and literally stew in frustration.
Fortunately, a contingency clause comes to the rescue! Your friends wants to eat at Poke Bowl Express. You tell them that you don’t mind eating there if the line is short. You decide up front that if the line is longer than ten people, you’ll go to Mary’s Olde-Fashioned Pancake House instead. The contingency you’re betting on is the length of the line.
Contingency clauses keep everyone honest. They’re useful for creating near win-win situations, especially for complicated decisions. Since you agree on the contingency before the actual event happens, it can be a nice, clean way to ensure everyone comes out happy. When everyone involved helps design the contingency, they’re more likely to agree to it whatever comes to pass.
Use contingency clauses in business
How do you hold a gigantic multinational corporation accountable? Use them when you need to hold a company or higher-up accountable for their actions. They’re building a new casino near a friend of mine’s town. He thinks it will attract a lot of crime. He says he’s even seen Lex Luthor, the Penguin, and Harley Quinn having lunch at the corner deli. The developers say “Posh!” They think it’s all in his head. If both parties really have different beliefs, they can use a contingency clause to strike a deal. The developers get the go-ahead to build the casino, but they’ll have to hire the Avengers League of America as a private security detail if the crime-per-capita rate increases in the area by a certain, agreed upon, amount.
Of course, no one actually knows if there will be an uptick in crime. Residents have a hunch it will, and the casino developers have a hunch it won’t (and a good crisis communications team, just in case). The contingency clause lets both parties create a bet that they believe will be in their favor.
In this case, they can’t control the future. But you can also use contingency clauses to bet on things you can control.
Bet on things you can control
You’re a screenwriter, and you’ve just landed your first big contract with a Hollywood studio. But the project has been a long time coming, and you’re behind on your bills. They even want to repossess your cat, and if they want her, they’re going to have to pry Fluffy out of your cold, dead fingers. Unless, of course, she eats her way out first. To keep you healthy and hale, you want payment up front.
You listen to the Get-it-Done Guy, so you know you’ll get the project done, if only you can afford to eat. The studio, on the other hand, is highly skeptical, especially since you made the mistake of telling them your best work is actually channeled through Fluffy from a 1,217-year-old Egyptian cat goddess. They don’t believe you’ll get the script finished, and don’t want to give you a cent until they have a finished script in hand. They give you one day to decide if you’ll write on spec, and only get paid when you deliver.
Don’t take their ultimatum! Give them a counter-proposal that includes … a contingency that handles both your concerns. You ask for partial payment in advance, so you get to eat. You add a contingency where you return the money if you don’t deliver by a certain date (or give them Fluffy if you don’t have the money).
The risk of creation is on the creator, and the business risk is borne by the business.
Contingencies are common in creative work
This is also how advances work. An author or writer is given payment as an advance against royalties. If they get their job done, they keep the advance, free and clear. Only if they don’t deliver do they have to return the advance. The risk of creation is on the creator, and the business risk is borne by the business.
Betting on contingencies that are under your control is powerful, but can be dangerous. Before believing you can do something, do enough introspection to make sure you actually believe you can do it. If you’re not sure how you’ll perform, it’s probably best not to use contingencies. And even with things outside your control, do your best to have a justification for why you think external conditions will turn out a certain way before you create contingencies about them.
One word of advice: when contingencies are in play, study them carefully to understand who gets paid under what circumstances. While it may be tempting not to look too closely at the contingencies you believe will never happen (e.g. “in the event of zombie apocalypse…”), there’s a reason the other party wants that clause. They just may have a secret warehouse full of Zombie Reanimation Powder waiting in the wings.
This is Stever Robbins. Follow GetItDoneGuy on Twitter and Facebook. I help people build and negotiate extraordinary careers . If you want to know more, visit http://ift.tt/1l2uWN6.
Work Less, Do More, and have a Great Life!
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