You spend thousands of dollars marketing and selling your products or services. Protect your investment properly with a well-drafted contract. Regardless of whether you are dealing with customers, employees or vendors, a contract should be the building block of any relationship. A contract makes your business look professional, clearly sets out each party’s rights and obligations, and is a fail-safe in case things go wrong.
A contract doesn’t have to be complicated or full of legalese. However, the following three elements should be written into every contract:
- What is each party getting?
Have you ever promised the world to get a client? Making this guarantee is very problematic from both a business and legal perspective. Declaring “I will build you the best website ever” raises client expectations to unrealistic levels and exposes you to liability if the client doesn’t think you met this standard. Define your promise in writing to manage client demands and reduce potential liability.
A well-drafted contract sets out: who the parties are, what each side is going to get, what each party is promising to do and when the work is going to be completed. In this example, the website developer’s contract goes from declaring “I will build you the best website ever” to a written document which states a 20-page website will be delivered in 3-5 weeks time for $1500.00. The client pays a 50% deposit when the contract is signed and the remainder upon completion of the site. The re-worked website development contract is more professional and specific, helping both parties in the long run.
- What is your exit strategy?
All good things must come to an end, and so must your contract. Sometimes business relationships turn sour. Sometimes the other side sells its business or passes away. Drafting termination clauses in contracts anticipates these situations and allows you to exit a business deal with minimal financial impact.
A good termination clause answers the questions: when can I terminate the contract, how can I terminate the contract (with or without cause?), how much notice must I give to terminate, and what are each party’s obligations upon termination (i.e. do I have to return money and property?). For example, you can terminate an agreement with a website developer on 30 days notice, with or without cause, provided the developer can keep the deposit (if any) paid in return for any mocks-up developed for you.
- Where is the contract located?
It is a very common assumption that your contract will be governed by the laws of Ontario because you do business in Ontario. But what happens if the other side carries on business elsewhere? Contract disputes sometimes go to court, and you want to make sure it is resolved in a court and legal system you understand and to which you have access. Without stating whose law will govern the contract, you could spend a lot of time arguing what provincial or state laws apply before even starting to settle a dispute.
This is especially problematic if you do business with parties in America where juries are allowed to offer an aggrieved party triple the amount of damages suffered. Laidlaw, which used to be in the funeral home business in Canada, lost a judgment in the hundreds of million of dollars because the case was heard by a jury in the United States and not in Canada. Avoid becoming Laidlaw and insist that your contract be governed by the laws of your jurisdiction.
Tip: Review your contracts annually. Your business relationship may change from year-to-year and minor amendments may be needed. An out-of-date contract is often more detrimental than no contract at all.
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