Key Contract Terms
Writing a contract can be as simple as a one sentence email. Even more simple would be the oral contract formed during a telephone call. But, what happens when something goes wrong? Well-written contracts address those situations and provide the parties with instructions on resolving differences
How to StartAll contracts require an explanation of who does what, when they do it, and what happens once the person performs. In legal terms, A offers to do X for B and B will pay $10 for A's performance of X. Real world examples are consulting, manufacturing, design, security, and countless other ones. The key part of this section of the contract is clearly identifying what each party will do and what their compensation will be. When drafting these particular terms, the more simple words that can be used - the better.
How to FinishTalk about how the contract ends. More than one business has been caught off-guard with an automatic renewal provision in the contract. In those instances, there was likely a paragraph that talked about how if you do not want to renew, then you need to send a letter by certified mail ninety days prior to the end of the contract - or something similar to that. Who marked their calendar to remind themselves that they needed to decide if they wanted to renew? However, this raises an important point about how to draft your contract. To draft an effective provision, simply describe how the contract ends. For certain projects, this is relatively simple, but for service agreements, this can be a bit trickier.
What if Something Goes WRONG?No contract can cover every possible eventuality or possibility. However, it is extremely important to thing about the processes that are covered in your contract and determine what would happen to your contract if something was disrupted along the way. For example, what happens if the widget delivery does not arrive on-time? For this part of the analysis, two things need to be addressed. First, is there a way to fix the problem? Could the final widget assembly be delivered tomorrow? Second, if the problem cannot be fixed, then do we turn to the courts or an alternative method of dispute resolution to address the issue?
a. Courts are one option to deal with breach of contract cases. Throughout history, courts have been asked to interpret contracts and determine who was right. Courts can award damages to make one party whole, but courts are limited in their ability obtain compliance or get someone back on the job. Litigating in court can be a lengthy process and chances are, if you have to bring the other side to court, the deal is probably dead.
b. Mediation is an intermediate option that gives the parties a chance to air their grievances to a neutral third party who will attempt to bring the parties back together. Mediation is only as good as the effort put into it; so if you are not willing to make an effort to reach a deal, then mediation is probably not a good option. From a contract drafting perspective, requiring mediation before going to court is a good option to consider because it does force the parties to consider their positions before sending out the dogs of litigation. Mediation is a consensual non-binding process that is only final if an agreement is reached.
c. Arbitration is putting your problem before a private judge. An advantage to arbitration is typically speed of decision because there is significantly less litigation involved. A disadvantage is that many of the discovery tools available in the court process are not present in arbitration. For international deals, arbitration is probably the best way to not only have the dispute resolved, but the decision enforced.
The BoilerplateBoilerplate is a funny word. Many people, including experienced business people, throw the word around to mean "stuff in a contract that has to be there, but we don't really understand." However, these terms are important to your contract. Here are three sections that should always be included:
1. Governing law - if you are doing business across state or international borders, you need to decide which state's (or country's) law will provide the law to interpret the contract if there is a dispute.
2. Entire Agreement - This paragraph will say that the written document is the final agreement between the parties and that all other emails, notes, discussions, and drafts are of no effect.
3. Third-party beneficiaries - This section will address if someone who is not a party to the contract has any rights to the benefits of the contract. This can be important, especially if there is an ultimate end user for the products or services provided.