A Tiny, $25 Million Mistake : Planet Money A small mistake in a contract can cost a company $25 million. But, most of the time, business doesn't work that way.
NPR logo

A Tiny, $25 Million Mistake

  • Download
  • <iframe src="https://www.npr.org/player/embed/348975479/349036441" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
A Tiny, $25 Million Mistake

A Tiny, $25 Million Mistake

  • Download
  • <iframe src="https://www.npr.org/player/embed/348975479/349036441" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

ROBERT SIEGEL, HOST:

People talk all the time about being right. Pundits compose columns about how right they are. Family members say they told us so. But the problem with all the crowing, besides being annoying, is that you don't learn much from being right. Being wrong, that's another matter. Jacob Goldstein, of our Planet Money team, has been talking to people about times they got things wrong. And he brings us this story about a very small error with a very large number.

JACOB GOLDSTEIN, BYLINE: When Matt Lavigne graduated from law school, he got a job at one of the fanciest corporate law firms in New York. He had a beautiful office, high up in a skyscraper. And he got catered meals three times a day, which he was going to need because the hours were very, very long, especially on this one project.

MATT LAVIGNE: I remember going to sleep at like, you know, three or four a.m., under my desk - which was not that unusual but it was - I remember it because it was my birthday, so.

GOLDSTEIN: His law firm was representing a small chain of stores in the Midwest and the chain was negotiating this big deal. Matt's job was to make sure the contract reflected all the tiny details. Finally, they close the deal. The contract is signed. And Matt goes home to get some sleep. The next morning, he comes into the office and starts catching up on all the e-mails. And he finds this one message that makes him think did I just cost my client $25 million? The contract Matt had written said his clients were going to be paid $400 million is for one part of the deal. But that e-mail - the one he'd overlooked - said his clients were supposed to be paid $425 million - $25 million more than he'd written in the contract.

LAVIGNE: At first, I was like well, no, I'm sure there's just another e-mail. But as I didn't find that other e-mail, I got more and more worried for, you know, for my career and for the client and - yeah.

GOLDSTEIN: Matt thinks, I am definitely getting fired. He calls his boss and his boss says we got to call the client right now.

LAVIGNE: And I called them up and we explained what happened. And he paused for a minute and then he just started laughing uproariously. And he said ah let me call them. I'll fix it. And that was pretty much it. I was pretty sure, you know, we had cost them $25 million and I was in big trouble. And he just said ah we'll fix it, no problem.

GOLDSTEIN: Matt had always thought a contract was a contract. The words said what they said. Then, he saw these two big companies laugh off his stupid mistake. The other side said yeah, of course, we'll revise the contract. We'll pay you what we agreed to.

LAVIGNE: It was surprising to me that it was so easy. It was surprising to me that no one was like well, let's split it in half. Or like, you know, well you got to give us something. You know, I thought it was a game of, you know, you sort of score points and they had scored this point, through my fault, and they were going to get something for it.

GOLDSTEIN: What Matt realized is this - business may be a game but, usually, it's not what economists call a one-time game. It's not two strangers facing off for a moment, with each one trying to get as much as they can out of the other. It's people who are going to have to live with each other, work with each other again. And down the road, maybe write some other big contract.

LAVIGNE: It's not the end of the deal, right? It's not just you cut a check and you walk away. I mean, they're paying our client for providing services for the next couple of years. So they had every reason to keep a good relationship and, both for that deal and in general, to just sort of keep a reputation for being honest and for dealing fairly with people.

GOLDSTEIN: Matt says this is usually the way things work in business. The only time the actual words in the contract really matter is when something goes really, really wrong. Say, when people start suing each other. In fact, Matt says there is a lawsuit going on right now that may turn on a single word - the word and. The big casino company Caesars is being sued by some bondholders. There's this one place in the contract where it says and. Caesar says come on that clearly should be an or. Matt imagines the contract was written by some 26-year-old kid who was sleeping under his desk and who didn't give that and a second thought. Jacob Goldstein, NPR News.

Copyright © 2014 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.