Hands up. How many of your contracts are actually fully in writing? Suppliers? clients? Even the very best of us probably still leave 10 – 25% undocumented, relying on gentleman’s agreements, previous arrangements, discussions over lunch. All of these are binding – a contract doesn’t need to be in writing in legal terms but when it is it can solve a whole load of heartache and difficulties if things ever turn sour.
A written contract is not just of use when you are in dispute with your customer either. It can also be a great starting point when things are going well and you are looking to maybe up your rate or fee. After buying your domain name and sorting out what form your company will take your standard contract is probably the most important company action.
So what should it include? Well obviously, the best way and most sensible way of establishing your standard contract is getting a lawyer to draft it. That may mean a small fee, but well worth it in the long run. Getting a professional to create it means it will not only get done properly with regard to the thousands of pieces of law and legislation that may affect it, but also takes the headache away from you.
However, preparing your own heads of terms (main points to cover) is a great way to ensure when you do see a solicitor about it, you have much of the relevant detail to hand. It also makes a great checklist for any new deals you are putting together,
Who is contracting?
This may seem obvious, but so important and so easily overlooked. Are you contracting with an individual or a company? WHat status is that company, is it a Private Limited Company? Do you need to check their financial viability? (there are a whole host of companies offering online status reports). What is their address for service – just in case things go wrong, make a note of their trading address which may be different too. It may be your lawyer will suggest a couple of variations of a standard contract depending on the type of company you are contracting with.
What, When, Where, How?
You’ve done the who above, but these next four are the fundamentals to the contract. What are you contracting to supply? Goods? Services? A mixture of the two? Be as descriptive and accurate as you can to avoid mis-understandings later. Is there a need to give a specific time for delivery? Is this fundamental to the contract? Where are you delivering it and how?
For how long?
Many contracts are created for a fixed length of time, but the parties often expect this to be a rolling contract even after that time has expired. Make sure your contract reflects what both parties expect. If the contract is to be a rolling one, what termination notice is required? Is it the same for both parties? If you are manufacturing things, make sure this accurately reflects and protects your lead times.
When all goes wrong
Well not all, anything. Liability is a big focus of any written contract and you should make sure if protects you as far as it can and fits in with your insurance policies so you are not over exposed. Make sure your liability is limited in proportion to the contract value. Certain things like personal injury and death can’t be limited but you will find lawyers also try their best to try to cover you with some clever wording.
Rights and ownership
Who owns what? This is particularly relevant for the intellectual property (IP) rights in the products or services you create. Who has future ownership to use these, exploit these and develop these? It may need some negotiation on price to ensure you get the IP rights you want, so bare that in mind.
These are only pointers and your solicitor will be able to advise fully, but armed with the above you should at least be forewarned and more aware of how best to negotiate new deals.
What other tips would you offer others?