4 Reasons You Need a Written Contract
The days of handshake agreements in business are gone. Conversations and verbal agreements can get hazy over time, which can lead to misunderstandings and conflicts. Written contracts that spell out the roles and responsibilities of each party are essential in any business transaction. Contracts make agreements between parties legally binding and provide a future written reference of the commitments to which each party agreed.
Read on for the four most crucial reasons that you need a written contract.
1. To make money
Your business exists to make money, and written contracts protect your ability to do so. The written contract provides explicit documentation of the substantive agreement between the involved parties, giving you the right to legal remedy and recovery if the other party does not fulfill their contractual obligations.
Running a construction business is filled with enough uncertainty. Written contracts help protect your investment into each project and give both parties a document to refer to if disputes arise. Investing the time into creating clear, robust contracts is one of the best investments you can make to protect the future of your business.
2. Risk management
Written contracts serve as an essential risk management tool. A well-written contract with as much detail as possible minimizes ambiguities and creates a sense of certainty about what is to be expected of each party moving forward. Written contracts should become a routine aspect of your business because they serve as written proof of the responsibilities that your company and your partners agreed to, should you ever need to argue a dispute in court.
Litigation is expensive, and companies can’t afford to be tied up in constant litigation. Yet, a lot of business litigation stems from claims of Breach of Contract. That sometimes means a legal battle over whether one party or the other met their obligations of a written contract. However, far too often, these battles arise because the parties did not spell their agreement out clearly in writing. Contracts, written with the help of experienced legal counsel, can act as a powerful risk mitigation tool against such litigation.
3. Reduces the need for interpretation
Business relationships are complicated, even between friends. It can be far too easy to focus on a few key elements in your contract, such as the price, terms, and timeline, but ignore other essential aspects. Contracts should define precisely what the agreement is between the parties, even outside of the “top of mind” considerations, such as price.
Complexity does not mean your contracts should be difficult to read or interpret, by either party. Well-written, enforceable contracts spell out the specific remedies for scenarios that can crop up in your business environment. What’s the remedy if you, or the other party, doesn’t produce or perform as per the agreement due to unforeseen circumstances? How will disputes between parties be resolved?
Clear language that lays out specific remedies for common issues outside of price and timeline reduces the need for interpretation and reduces the likelihood of misinterpretation. Written agreements give each party a clear understanding of both their rights and responsibilities in any business matter covered by a written contract.
4. Parties are more likely to abide by the terms of a contract when it’s in writing
Written agreements command more respect than the less carefully crafted oral agreements. Parties involved in oral agreements feel they have more wiggle-room to decide for themselves what they agreed to do. Given that the primary goal of a contract is to avoid disputes, written contracts carry more weight and are less likely to cause disputes.
Some breaches of contract, especially oral ones, occur because one or more parties genuinely do not remember their exact part in the agreement. Written contracts remove any misunderstanding about what every party agreed to do and when they agreed to do it. Written agreements serve as a future reference when it is time to perform the agreed-upon role.
The bottom line
Think of written contracts as a way to preserve relationships. It’s far too easy to think that someone you trust would never default on an agreement, but it can and does happen. Life circumstances and relationships change, and oral agreements leave too much room for misunderstanding. Many relationships have been damaged by an oral agreement, where one or more parties genuinely did not realize or remember what they had agreed to do.
Your business depends on a healthy bottom line. Unfulfilled contracts that cost you customers, legal issues, including litigation and damage to your reputation, are all possible consequences of not maintaining well-crafted written contracts.
If you need a written contract for your construction business, contact Daffern Law Firm to draft the clear, precise agreements you need. We want to help you make your business successful, and in our opinion, contracts are one of the very best ways to do so.
