While I’m no lawyer, I have had to deal with my share of contracts over the years. However, here are five tips I’ll pass along to those of you who are just starting to work with contracts. I’ll warn you that any advice I give doesn’t take the place of talking to a lawyer about your contracts:
- Keep a standard contract around. It’s a good idea to have a standard contract that has all the terms you think you’ll need, whether you’re a customer who might need to get vendors and consultants working with you, or as a software or services vendor in order to do business. I especially find it handy when working with customers who are rather small or newer businesses. Not only does it speed up the process but I find my contract puts people’s minds at ease – they can see there are a lot of practical things in it that benefit both sides. It helps allay some of the uneasiness they might have about the process being overwhelming.
- Don’t sign a contract you don’t understand. These days, most contracts I see are written in plain language. That is to say, there don’t tend to be a lot of “part of the first part” or “hereto and forthwith” and such in them. Still, even with that, it is sometimes difficult to understand the intentions of some of the clauses. I always ask for clarification. After clarification, I re-read the clause to see if it now means what the explanation says it means. If not, I still don’t necessarily write back and ask for a rewrite. It’s a judgement call you have to make in these situations.
- Feel free to change a contract. Many times, I’ve been handed a contract and been told that “no changes are allowed” but I’ll also tell you that I’ve never, not once, ever handed back a contract without changes. Whether there’s a mistake in the contract that no-one previously caught or there’s a term I can’t or won’t comply with, I’ve never been shy about suggesting the change and I don’t think I’ve ever lost a potential customer because of this.
- Be careful with insurance details. A tip from my insurance company is to merely mention the actual limits on the insurance and the type of insurance but no other details. As they pointed-out to me, they can change some of the details and then you have to go back and create a new contract or an addendum, merely because they’ve enforced some change. This is actually one of the more common places I end up asking for changes (as mentioned in (3) ) because the insurance terms in the contract are sometimes incorrect – I wouldn’t be able to comply with them because they don’t happen to exist in the form in which they are written into the contract. Additionally, certain types of insurance vary from state-to-state. If you include details on the insurance based on your own state’s rules, the other business isn’t necessarily eligible to buy the insurance in that form if they are not a registered business within the same state. There are even more variances than just those by state, but that could be an entire article of its own.
- Don’t sign a contract with someone you don’t trust. Contracts don’t actually force anyone to do anything. When you trust someone, getting a contract together helps make clear what each side expects of each other. If you had to go to court, the contract can help determine fault. However, how many cases do you know of in our industry that went anywhere? Think about it – it’s hard to prove fault and court cases can be expensive. If you don’t think you can trust the other side to follow the contract, just walk away and find someone else to do business with.
I left the best for last but it’s a rule I’ve stuck with through all my years in business. In all those years, I have, so far, not had problems where I haven’t been paid by a customer and I tend to think that the two are related.