Make Sure Your Contracts Make Sense

Drawing on Parchment by Hilke Kurzke from Flickr (Creative Commons License)

One area where many entrepreneurs struggle is understanding contracts or creating custom contracts to fit their needs. Contracts are essential for every entrepreneur, but there are nothing to be afraid of. The best way I know to describe them is they are relationship management documents. They keep everyone involved in a project on the same page and hopefully are written in a way that lays out and meets everyone’s expectations and needs.

Map Out the Relationship
Before I begin writing a contract for a client, I ask them to explain the lifespan of the contract and the expected interactions between the parties. I want to have a clear mental picture of the relationships between the people involved and the expected timeline they will follow during their working relationship, including how they will address common problems in that type of work or industry. The better I understand the interactions between the parties, the easier it is to draft a contract that fits their needs, whether it’s a custom template or a contract for a specific situation.

I recommend everyone involved in a contract do the same – with a timeline, flow chart, or an outline. This will help you clarify for yourself what your expectations are, and you can use this as a guide to make sure your contract addresses all your needs and concerns.

Compare Your Vision to Reality
Once you have a contract that matches the way you envision the relationship working, compare the terms of the document to reality. If your contract template states that payment must be made within 30 days of sending the invoice but you know you’re working with a company that takes 60 days to pay invoices, no matter who they’re form, change your contract so it matches their process.

Likewise, worst-case scenario situations to make sure your what-if provisions make sense. In many contracts, I write a provision that states that disputes will be resolved in litigation. However, if you’re in a situation where a client didn’t pay for a project and owes you $1,000, it may not be worth it if you have to file a claim in small claims court, get the person served, and then go after them for payment if the court renders a judgment in your favor.

In that type of situation, it may be better to write the contract to state that the client won’t get the final work product until their bill is paid in full. The dispute resolution clause can still mandate litigation, but chances of you having to go to court to get paid drop if the client won’t get what they hired your to do until you get paid.

Contract Disputes – Your State, Your State’s Laws
Every contract needs a provision that states how the parties will resolve problems when they occur. This should include where the parties will resolve problems (e.g., Superior Court of Maricopa County, Arizona) and that the parties consent to this venue (in case you’re dealing with an out-of-state client). It should also include which state’s law governs the contract. Whenever possible, you want your contracts to state that all problems will be resolved on your turf and under your state’s laws.

Ideally, your contracts, especially your templates, will be written or reviewed by a business lawyer to ensure it is valid and complete. If you sign a contract that is legal, but has terms you later realize are not favorable to you, there may be nothing you can do to change them. Your contract should also be written in plain English so the parties involved can easily refer to it throughout their working relationship without needing their lawyers to translate the legalese.

If you want to connect with me and my experiences as a contract writer, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Crazy Contract Clauses

M&M by madame.furie from Flickr (Creative Commons License)

M&M by madame.furie from Flickr (Creative Commons License)

I love contracts. I know this makes me a big legal dork, but I love writing them and reviewing them.

A contract is the documentation of how a relationship is going to work and as long as the provisions aren’t illegal, you can put in whatever you want. There’s a lot of room for creativity, and I wish more people would take advantage of it. I was tickled pink earlier this year when I got to use the phrase “sexy bitch” in a contract. Granted, this was a contract between another legal blogger and me, so we had more license to have fun with it once we got the essential verbiage down.

I worked with a woman earlier this year who was writing the terms of service for her website. She was overwhelmed and confused when she read other sites’ terms but relaxed when I explained what all the legalese meant and that she could write terms that were simple and in layman’s terms, similar to what Reddit does. A few months ago I walk talking with a business owner who was frustrated when his co-owner cancelled their meetings. Since they were both fans of craft beer, I suggested they put a provision in their operating agreement that the penalty for cancelling a meeting for a non-emergency would be a growler of beer.

I did some digging and here are some of my favorite crazy provisions I’ve heard about in other contracts.

  1. Michael Jordan’s contract with the Chicago Bulls said he could play basketball anytime anywhere. He could play in exhibitions, pick-up games, etc. Apparently, he is the only player general manager Jerry Krause gave this provision to. I suspect other professional athletes have a lot of limits put on their activities to prevent injuries.
  2. The Houston Astros promised pitcher Roy Oswalt a bulldozer if they won the 2005 National League Series. The Astros won and the team gave Oswalt a Caterpillar D6N XL as promised.
  3. Van Halen’s rider required concert venues to provide the band with a bowl of M&Ms but no brown ones. This provision was quite ingenious. Van Halen’s show was a huge production that used 850 par lamp lights and at the time most venues weren’t used to them. If the band arrived and there were brown M&Ms in the bowl, it showed that the venue may not have read the contract carefully enough and they would do an additional check to make sure everything for the show was put up properly.

I love drafting custom contracts and I encourage people to ask for what they really want and make them their own. If you want to chat with me about this or any other topic, you can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.