Every new business contract that an organization signs can have an impact on operations. Contracts help companies ensure a steady stream of business revenue. They allow businesses to secure the support of the best talent available. Contracts make business expenses predictable and enable an organization to maintain an efficient operating schedule. It is, therefore, of the utmost importance for contracts to be clear, thorough and legally enforceable.
What does a contract generally need to include to be as strong and effective as possible?
Clear expectations for both parties
Contracts primarily serve to clarify the terms of a business arrangement. It is therefore of the utmost importance for a contract to include clear language describing what each party promises to the other. The contract should include an offer made by one party and terms of acceptance from the other.
Pricing details, scheduling matters and even quality standards often require consideration in a contract. The more detailed the contract is regarding the goods, services and payment that each party owes the other, the less likely there is to be confusion and conflicts. There should be an acknowledgment of each party’s capacity to enter into the contract, and the terms of the agreement cannot violate any applicable laws.
Productive secondary clauses
Solid contracts generally need to contain clauses that extend additional protections to the parties signing the agreement. There may be a severability clause, for example, that allows the contract as a whole to remain in effect if a minor violation of one part of the contract occurs.
A force majeure clause allows either party to terminate the arrangements when factors beyond their control, such as natural disasters, prevent them from fulfilling contract obligations. Penalty clauses create financial consequences for late payments or other contract breaches. Restrictive covenants can help protect the privacy of the parties and prevent either party from unfairly competing against the other in the future.
The exact protections required in a contract depend on the nature of the agreements and the relationship between the two parties. The more important an arrangement is for the future of the company and the more exposure it generates, the more important a customized contract becomes. Instead of using fill-in-the-blank, generic documents secured from the internet, organizations often benefit from negotiating custom terms for each new major contract.
Reviewing a pending agreement with a skilled legal team can help an organization craft a bespoke contract that extends the best protections possible while limiting the company’s risk. Organizations that draft custom documents can feel more confident in their protection and their ability to enforce their contracts if a breach ever occurs.
