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10 Tips for Drafting an Effective Contract

No matter how well you know and trust the person you’re dealing with, when it comes to your business – ALWAYS get it in writing. Without a written agreement clearly setting forth each party’s obligations and expectations, when something goes wrong there is nothing but your word against someone else’s – which can ruin relationships and lead to time consuming and expensive court battles. The investment of a little extra time and effort to reduce your agreement to writing can save significant time, money, and headache in the long run. When drafting a written contract, keep the following tips in mind:

1. Clearly identify each party to the contract. Include the full legal name and address of each party. If you are contracting with a business, make sure that the business (not just the person signing on behalf of the company) is named as a party to the contract.

2. Include a detailed description of each party’s duties/obligations under the contract. You will want to clearly define each party’s duties, including the goods and/or services to be provided and a timetable for delivery/completion.

3. Include a Termination Clause. You should clearly specify which breach of contract events trigger a right to termination of the contract, how much notice is required prior to termination, and whether the breaching party is entitled to an opportunity to cure.

4. Include a Merger/Integration Clause. You should clearly state that the contract represents the entire agreement of the parties. This prevents a party from later claiming that the contract does not reflect their entire understanding, was changed by a subsequent oral agreement, etc. You should also include a requirement that all amendments to the contract be in writing and signed by all parties.

5. Clearly define all important terms. Don’t assume that all parties to the contract will have the same definition for important terms. For example, contracts often call for delivery to be made bi-weekly. What does that term mean? If you look up bi-weekly in the dictionary, “biweekly” can mean either twice per week or every two weeks. If the contract doesn’t clearly state which definition applies, conflict can result.

6. Anticipate Litigation. The contract should include provisions regarding choice of law, forum selection, and attorney’s fees. You may also want to require that alternative dispute resolution methods be utilized (mediation, arbitration) rather than litigation.

7. Include a Savings/Severability Clause. In the event that one provision of the contract is found to be unenforceable, this clause ensures that the rest of the contract will remain in force.

8. Number the pages of the contract. This avoids the possibility that additional pages may be unscrupulously added after signing.

9. Use exhibits to memorialize the specific terms of the agreement. This allows you to use the same base contract over and over again.

10. Consider including provisions regarding the following, if applicable: a. Remedies for nonpayment/late payment fees; b. Copyright ownership; c. “Time is of the Essence” clause; d. Assignability (can obligations under the contract be assigned to a third party?); e. Renewal terms; f. Return of property at expiration of contract; g. Confidentiality; and h. Limitation of Liability/Indemnification.

While the above tips provide basic guidance for drafting a generic contract, they are not tailored to your business’ specific circumstances and needs. It is good practice to consult with an attorney to draft or review all of your important business contracts. Jodi R. Heltenberg, Esq. of Heltenberg Law can help protect your business by ensuring that your contracts are drafted in your business’ best interests. She can be reached at jodi@heltenberglaw.com or 720.635.3218.

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