People make deals every day. They reach an understanding. They shake hands.
Sometimes, hand-shake deals work out. Unfortunately, sometimes, people remember the agreement differently, and there’s a misunderstanding. So, if it’s important, put the agreement in writing.
Unfortunately, even a well-written contract does not guarantee you a good deal. A badly written contract, or one that you do not understand, can hurt you.
So, be sure to read the contract carefully.
A good contract clearly explains what each party expects to give and get, and what happens if either party fails to perform.
When developing and reviewing a contract, consider these 10 issues:
- Agreement
Does the contract truly reflect a “meeting of the minds”? The terms should be clearly stated, balanced, and fair to all parties.
- Purpose
Good contracts include a clear statement of intent (the purpose of the agreement), the scope of the work included, and a description of the project description.
- Terms
The contract should list a timetable for performance, deliverables, payment schedule, deadlines, and penalties for late delivery, as appropriate. Often, payment terms are set for the initial contract and also for additional work beyond the scope of the contract. Depending on which side of the transaction you are on: you should be able to stop work if payments are not received in a timely manner (as specified) or stop payments if work is not completed in a timely manner (as specified).
- Intellectual Property
If something new is being developed, the contract should state if a license has been granted or who has ownership rights.
- Confidentiality
Contracts should address issues of confidentiality in a clear, reasonable and reciprocal way.
- Liability Limitation/Indemnification
Many contracts include a “hold harmless” provision if performance is impossible due to events beyond your control, like earthquakes, blizzards, war, etc. It may include “not responsible for (insert contingency)” statements, and address mutual infringement indemnification.
- Warranties
Industry-standard performance criteria should be included.
- Conditions
Does the contract have a clause 'contingent upon receipt of...'?
- Termination
The contract should list requirements for notice of termination and give the parties the opportunity to “cure” (fix the problems).
- Dispute Resolution
Does the contract include provision for mediation/arbitration, the location, and choice of law for resolution.
Even with a well written contract, you can run into problems. Unfortunately, sometimes people/companies do not honor their agreements. It’s wise to be cautious. If commitments aren’t being met and/or payments are delayed, don’t let a big balance due build up. You may have to insist upon receiving payment before additional work can be performed or work being completed before additional payment is made.
Bottom Line:
Make contracts work for you by clearly defining expectations and payment terms, in writing, in the beginning.
NOTE: Information provided is intended as a broad, general overview and is not legal advice.
© Copyright, 2008, Jean Sifleet. All rights reserved. Used with permission.
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About This Author:
Jean D. Sifleet, Esq. CPA is the head of the Business Practice Group of Worcester. For practical information, check out Jean's articles and books which are featured on SmartFast.com.
