The Loophole Game: Contract Loopholes to Look Out for

In July of 2013, the Pennsylvania House of Representatives passed House Bill 465 with the aim of closing the “Delaware Loophole.” Formerly, this language had essentially allowed businesses to move their assets to companies out-of-state in order to minimize taxes. The Delaware Loophole is just one example of a well-cloaked danger that has the potential to quietly invade any contract. Like pests on crops, loopholes are hardly noticeable — until they’ve done their damage. You need to be vigilant, and in order to be vigilant, you need to know what you’re looking for.

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 Where’s The Contract?

What ought to be one of the most glaring contractual loopholes is often not even considered because of how basic it is: the absence of a contract, period. There are several reasons — none of them ethical — a business may decide not to have a physical contract drawn up in the first place. They may consider it to be:

  • too restrictive. Watch out for language like, “Let’s take it from here and see where things go,” “We don’t want to box anyone into a creative corner,” “What if we find that something isn’t working and we want to change directions?” or any similar sentiments.
  • too expensive. They might push an argument along the lines of, “Why waste money hiring lawyers and legal advisers? We know what we want out of this arrangement; you know what you want out of this arrangement; why slow ourselves down by bringing in a third party?”

The bottom line is, without a contract in place, you’re walking on a tight rope with no safety net beneath you. Without a plainly stated set of rules and conditions in place ahead of time, it’s just too easy for the other company to play dumb — to their advantage.

If you have a contract, you have something to refer to. If you don’t, it’s simply their word against yours. That’s going to end in a stalemate at best, and, at worst, a lot of aggravation, wasted time, and wasted money.

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Show Me The Money

The very point of drawing up a contract in the first place can arguably be reduced to one key dimension: money. The entirety of the contract, of course, should utilize clear, detailed, non-contradictory language — but payment in particular is an area that needs to be given special care and attention. Some payment loopholes to watch out for include:

  • lack of breakdown. Rather than giving a lump final sum, the contract should dissect the grand total into sub-payments rendered for specific services, products, etc. You should see a receipt, not just a final cost.
  • lack of dates. This allows for endless delays and push-backs. You need to have a timeline to prevent never-ending additions and changes.
  • lack of repercussions. A good contract lays out the consequences of failing to deliver, on both ends. With no consequences, there’s nothing to ensure compliance.

If your business is struggling with a contractual dispute, contact Berkowitz Klein. Get what you’re owed.