Contracts are what makes the business world go round. They’re binding, enforceable legal agreements between parties that allow deals to be made with the reasonable expectation that they’ll be fulfilled.
Finding blank form contracts is fairly easy. A simple Internet search will find most of the service agreements, leases, independent contractor agreements, etc. Occasionally, however, you’ll need to draft your own contracts for certain business functions.
When drafting a contract or adding to a contract template, your aim should be to clearly state what each party in the agreement is agreeing to do and how they’ll do it. Ambiguity should be kept to an absolute minimum.
When drafting a contract, there are four basic things you need to do: clearly state what the parties are agreeing to, anticipate and resolve potential conflicts or areas of confusion, and provide for recourse should the agreement not be followed.
Most contracts include:
- A title which sums up the basic point of the agreement being made. For example, a customer service agreement might be entitled Acme Cable Customer Service Agreement.
- The names and addresses of all the parties to the contract and their role in the contract (landlord, tenant, employer, employee, etc.). This helps establish the identities of all parties involved and their roles with regard to the contract. Being clear on this point is important, especially if there are multiple parties involved in the contract.
- A background description of the contract agreement, explaining what types of businesses the parties operate and the activities they’re pursuing together. For example a contract between a business and a pest extermination service may spell out that Acme Cable Corporation is a company with 20 offices in the Atlanta area and that Marco Pest Control is an extermination company providing pest control services in the Atlanta area, and that the subject of the contract is an agreement between Acme and Marco to provide pest control services for Acme’s offices.
- A full and complete description of what each party in the agreement is expected to do and how they will do it. For example, if the contract is a service agreement between Acme and Macro, the contract would describe the work expected of Macro by Acme, when it will be performed, how it will be performed, possible deadlines and criteria for successful completion.
- The price of any products or services involved. The price of services provided should be clearly spelled out, along with a description of pricing for any additional services provided.
- Payment arrangements. This should outline how payment is to be made, by what means and whether payment will be made as a lump sum, or in installments. This part of the contract should also address late payment and interest if applicable.
- Warranties provided regarding the product or service provided. This should detail any obligation by a service provider or product maker to repair or replace faulty work or products and remedy any damages caused by faulty work or products.
- Transferability of the contract. Your contract should address whether the contract is transferable to another party. For example, a contract between Acme Cable and Marco Pest may contain a clause allowing Marco to hand off the job to another pest company.
- Termination clauses. Your contract should contain language that addresses whether the contract can be cancelled and under what conditions. For example, a contract for an ongoing service may require a 30 day notice of cancellation.
- Breach of contract clauses. This should address the remedies available to parties if the agreement is breached, including damages, mediation or arbitration. This clause should also spell out potential breach of contract circumstances.
- State law agreement. This portion of the contract should detail what state law applies to the contract should the agreement be between parties in different states.
- Signed and dated. Your contract should have the signatures of the parties, the date the contract was entered into and the addresses of the parties.
Organizing the contract
Once you’ve included all the information necessary, you’ll need to make sure that it is written in a professional, but user-friendly format. Most of the terms above are broken out by numerals for better accessibility and easy reference to terms.
Complex aspects of the contract, such as architectural blueprints or design schematics, should be included as attachments to the contract. Any attachments should be labelled and referred to in the contract, and it should be noted in the contract that the attachment is a formal part of the contract.
Changing a contract
As you review your contract, you may find terms you’d like to change. This is common, as contracts are typically negotiated back and forth via offer and counteroffer.
When changing a written contract, there are a number of ways this can be done, such as scratching out offending language and filling in new language directly on the contract, and having parties initial the changes to show their assent.
Chances are, however, that your contract will be on a computer, where changes can be made easily and neatly. Just change the items you need to change, print out a new copy and have both parties sign when they’re in agreement. Read documents carefully before signing to ensure that you are signing the revised version of the agreement, and not the original.
Addendums
Contract terms can be changed later if both parties are in agreement. Addendums to contracts are changes made after the contracts are signed. An addendum basically adds to or modifies the existing contract. The addendum should clearly spell out that it supersedes the original agreement, and both parties must sign it for it to be valid.
By understanding how contracts are written and the need to clearly and unamiguously write contracts, you can draft agreements that are clear, concise and designed to minimize potential conflicts. As contract disagreements can result in costly litigation, it is very important to have solid contracts governing your agreements with other businesses and clients. For complex contracts, you may want to seek the advice of an attorney with experience in contract law to avoid making costly mistakes.
