Some people do business on a handshake.  That's risky.

It's difficult to enforce an agreement that is not written.  It's also difficult to get out of a contract that you signed.

If it's purely a verbal agreement, there are many perils.  Memory is selective and fades with time.  Different people remember conversations differently.

If the deal is important, take the time to write it down, be clear about what you expect and confirm that your understandings are mutual.  It is much better to find out early if there is a misunderstanding about expectations.

It is important that the contract accurately reflect what the people agreed on.  Do not assume that the document prepared by one party or that party's attorney accurately reflects your understanding of the agreement and protects you.  Read it carefully.

A good contract clearly explains what each expects to give and get, and what happens if one party fails to perform.

For everyday business, it's a good idea to use a 'standard' business agreement.  A simple letter confirming your understanding of the agreement can be sufficient for many matters.

Putting it in writing helps to make it clear.  Problems usually arise from a lack of clarity -- when there's a misunderstanding about expectations. For example:

Scope Of Work Is Unclear
One party thinks the job is done and the other wants more work for the agreed price.

Specifying what work is covered in the quoted price and clearly stating when additional fees apply for additional work can help to prevent misunderstandings.  For example, instead of saying 'The fee for this project is $x', specify, 'The fee for this project ($x)includes processing 3 sets of revisions.  Additional revisions will be processed at a charge of $y/hour.'

Software projects in particular need 'doneness' or 'completion criteria' for each phase, since software can always be improved.

Payment Terms Are Unclear
One party expects payment and the other is not prepared to pay at that time.

Specifying the payment schedule and deliverables or milestones at which payment is due can help to assure that both parties have the same understanding of what amount is due at what point in the project.

Timeframes Are Unclear
One party expects things to happen faster than the other, or makes commitments assuming that the work will be done by a certain date.

For example, if you have a contract to remodel in anticipation of a major event such as a wedding and the work is not complete on time, it can be a disaster. Financial commitments may have been made for other services (caterers, musicians, etc.) that cannot be rescheduled.  It is important to be very clear up front about the completion date and whether the date is flexible or not.  It is also very important to have a realistic schedule and review actual progress against the schedule on a regular basis.  Penalty provisions can be included if the schedule is not met.

Responsibilities Are Unclear
Who is responsible for what?  A frequent problem area occurs between landlords and tenants.  Who is responsible for trash removal?  Replacement of light bulbs?  Repair of the water heater?  It is important to be clear about what is included in the base rent and what, if any, additional charges apply.

Leases are very important documents and generally favor the landlord.  Tenants should carefully review a lease before signing (see prior eNews re renting space).  Do not assume that the cost of snow plowing and other building maintenance is included in the rent.

It does not matter what the broker or landlord said; it matters what is written in the lease.

A well-written contract does not guarantee you a good deal.  A badly written contract, or one that you do not understand, can hurt you.  The problem usually does not show up until something goes wrong, and then it's too late.

STANDARD AGREEMENTS
It is good business practice to have a standard agreement (sometimes called 'Ts & Cs' for terms & conditions) that summarizes how you do business.

I recommend using a letter that covers the standard items like billing and payment and is tailored to each project or client by defining the project scope and milestones.  It's also a good idea to discuss how you will handle changes that may be necessary as the project evolves.

Of course, Standard Agreements don't work for all situations.  For more complicated situations, it's important to have a carefully constructed contract that clearly reflects your agreement and protects you in the event that things don't go as planned.  Such agreements need not be lengthy and full of legalese.

Jean D. Sifleet
Attorney & CPA

P.S. If you don't currently use a standard agreement in your business, I recommend pulling one together.  If you do use a standard agreement, it's a good idea to review it and ensure that it is covering the bases.  The goal is to reduce the possibility of misunderstanding, and hence improve the chances that you'll get what you bargained for without a hassle.