Top Five Things You Need in Every Contract

A contract is a legally binding agreement between two parties that outlines the specifications of the partnership. Whether establishing a working relationship between businesses, or businesses and clients, contracts act as a safeguard against disagreements that arise after the initial agreement occurs.

There are several types of contracts that may meet your needs:

1. Bilateral contract

A bilateral contract is an agreement in which both parties exchange a promise to perform a specified action. This might include a seller providing goods and services in exchange for compensation from the buyer. Additionally, bilateral contracts may appear in the form of employment contracts, leases, and warranties.

2. Unilateral contract

A unilateral contract is one in which a party agrees to pay for an ability to perform a specified act. For example, rewards are considered unilateral contracts as one party agrees to pay out or provide specific value to anyone who can meet the contract's terms. However, since no particular party is required to enter into the agreement or perform a particular act, it is a unilateral contract. Insurance is another example, as they promise to pay a predetermined amount of money, but only on the condition that a certain event occurs.

3. Firm-fixed price (FFP) contract

Firm fixed-price contracts maintain that the goods or services provided are not subject to adjustments based on increases in a contractor's operating fees. Although less administrative work may be necessary due to the fixed cost, sellers assume a higher risk that pricing may not be in their favor later. This type of contract should include a thorough list of all buyer expenses. Should the project fees exceed the terms of the agreement, the seller absorbs the additional costs.

4. Cost-reimbursable contract

A cost-reimbursable contract is developed when the project details are not specific, or the project risk is high. With this type of contract, a buyer pays all of the costs, so the burden of risk is on the buyer rather than the seller. The challenge with this agreement is that the buyer will be compelled to pay the seller's full scope of fees.

Spend time on the contract details

Clarifying the details of an agreement is perhaps the most essential element of a contract, beyond identifying the parties involved. Certain details should be explained meticulously throughout the written agreement, taking particular care to address compensation, ownership, any nondisclosure agreements, and deadlines. 

Additionally, any voluntary termination of the contract should be explicitly mentioned within the terms and conditions. Once the contract is complete, neither party should have any doubt about their roles and responsibilities.

There are five critical elements of every contract that will make the extent of services transparent for all parties involved and ensure that the agreement is legally upstanding.

1. Offer of services

The offer expresses the terms of which goods or services are being exchanged for compensation. It outlines the "why" behind the development of a written agreement and states what each party promises to do upon acceptance of the offer.

2. Acceptance of offer

An offer should be accepted voluntarily and within the boundaries of any terms and conditions, such as a deadline. Offers that are accepted under duress, such as blackmail or violent threats, are not legally binding.

3. Consideration of details

After discussing the details of the exchange, it is important to discuss the value that each party is providing to the agreement. This may be monetary funds as well as acts or duties.

4. Legal intent between parties

While the entirety of a contract should detail all parties' legal obligations, it is crucial to state legal intent explicitly. A contract must adhere to applicable laws and regulations, and it must be evident to each party that any breaches may result in legal action.

5. Competency and capacity

Contracts are legally binding so long as each party is competent at the time of signing the agreement and maintain the capacity to uphold its terms. Signees must be of legal age to enter into a contract and not be under the influence or otherwise impaired.

Building dispute resolution into your contract

Regardless of how detailed a contract is or how confident each party feels in upholding their end of the agreement, it’s wise to incorporate dispute resolution strategies in your contracts. Should one party be unable to fulfill its obligations, dispute resolution clauses detail the specific approach the parties will take to resolve the issue at hand. In many cases, dispute resolution strategies can solve disagreements out of court, which saves both parties a considerable amount of time and money. 

Building in deadlines, mandated mediation, terms for adjustments, or even termination conditions may help avoid further legal conflict.

Writing a strong contract

To ensure that you achieve favorable contract terms and that you fully understand what you’re agreeing to, you should always consult an attorney to review your contracts. While it may be possible to amend a contract after signing, the best way to reduce your risk is to have all of the details worked out ahead of time. If you need assistance drafting or reviewing a contract, get in touch with Daffern Law Firm today.