“Get it in writing.” They’re four words that you hear all the time and for good reason. When it comes to contracts, all too often a claim arises, or is more severe than it should be, because of a poorly written (or non-existent) contract. A clear, well-drafted contract is the first step you can take to significantly reduce the risk of a claim against your firm. Although sometimes challenging to negotiate, a contract is a vital part of each project and determines the terms of the business relationship and how it will be governed.
Are you looking back at a contract and wondering if it could have been written better? Or are you in the habit of performing work without the benefit of a clearly drafted contract? A well-crafted contract contains many areas, but here is a list of the essentials:
- Scope of work: A clear scope of work enables you to know what your client expects of you. By working together and putting the scope of work in writing, you remove any misunderstandings and confusion from the beginning and each party knows its responsibilities. An additional benefit to a clear, specific scope of work is that it also identifies what is NOT your responsibility. It’s important to be cautious if asked to sign a vaguely worded, overly general scope of work as it could lead to potential responsibility of services that are not typically within your realm of experience.
- Change orders and change in scope of work: Changes are bound to arise throughout a project and the scope of work may see some modifications. That’s why it’s important for you and your client to mutually agree in writing as to how you will handle these changes. It can help alleviate any disputes should changes arise and also ensures that you are paid for any additional work.
- Negligence Standard: The ‘standard of care’ means that you will perform in a manner consistent with the degree of care and skill as others in your field currently practicing under similar circumstances at the same time. Therefore, you will not be legally liable for a mistake unless it can be proven that you were negligent. It’s important to make sure that this ‘standard of care’ is within the written contract and that you are not guaranteeing or warranting your work. As an example for those in the design professional field, it’s recommended that contractual language be changed if it removes the negligence standard and subjects you to guaranteeing your work.
- Limitation of Liability Clause: A limitation of liability clause is a provision in a contract that limits the amount of exposure you can face if a lawsuit is filed or another claim is made. A limitation of liability clause can also “cap” the amount of potential damages you have to pay and is a highly effective risk management tool. It can also lower insurance premiums and is allowed and enforceable in most states, as long as the language is clear, agreed upon by both parties, and free of ambiguities.
Once a contract is drafted, make sure to review it carefully for consistency. For example, it’s important to ensure that the same terms are used uniformly throughout the document and are not mixed with other terms that may create confusion.
The goal in drafting a contract is that once it’s signed, it can be filed away and not referred to again as you complete a project and the client pays in a timely fashion. However, in the event of a problem, dispute, or concern, a well-written, clear contract can mean the difference between staying in business or facing legal and financial headaches.