I’ve worked on a lot of contracts, from simple one-page agreements to multi-page documents that cover every aspect of a project. I’ve learned a lot about what works and what doesn’t work when it comes to drafting and negotiating contracts.
In this article, I’m going to share some of those lessons with you so that hopefully you can avoid some common mistakes that people tend to make when writing their contracts or working with others who have drafted theirs poorly (which happens more often than you might think!).
| Takeaways |
|---|
| 1. Avoid vague language and ambiguous terms. |
| 2. Ensure consistent use of defined terms throughout the contract. |
| 3. Clearly outline the rights and obligations of each party. |
| 4. Include dispute resolution mechanisms for potential conflicts. |
| 5. Avoid excessive use of legal jargon; strive for clarity. |
| 6. Address potential risks and liabilities explicitly. |
| 7. Specify the governing law and jurisdiction of the contract. |
| 8. Double-check numerical figures and calculations. |
| 9. Review and update contracts regularly to reflect changes. |
| 10. Ensure proper identification of the contracting parties. |
| 11. Seek legal counsel when drafting complex contracts. |
1. Not knowing if you’re competent
Before you even start thinking about what clauses to include in your contract, you need to know if you’re able to write and execute a good contract. That means having an understanding of all the strengths and weaknesses that come with being yourself and with being a business.
If you’re going into this blind, that’s okay but it also means there are some things about which you should be extra cautious when writing your contracts. For example:
What are my skills? How much can I do myself? Do I have any specialized knowledge of this field?
What is my experience level in this industry or for this particular type of work (i.e., how long has it been since I did this kind of thing)? How long have I been doing these kinds of projects on my own?
What resources do I have at my disposal that will help me complete the project (like access to other people who will help me out)? Will they be available when needed?
What other resources might be useful/necessary for completing this task successfully (such as software programs)? Can they be accessed without issue during the period specified in our agreement?
If certain resources aren’t accessible by someone else due to availability issues or whatever reason.
Does that mean only one person can complete all tasks necessary for completing their part in making sure everything goes smoothly between now until the delivery dates defined within our agreed terms?
Or does one party still have room left over under those same terms so they could hire someone else instead while still fulfilling their end commitment obligations towards achieving successful results within original deadlines established per day/week/month depending on the length needed before the delivery date(s)?
Agreed upon between parties involved during negotiations phase before signing contract documents back then informally discussed verbally without formal documentation signed yet today.
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2. Assuming Your Clients Will Get Upset If You Require Them To Sign Your Contract
The third mistake is assuming your clients will get upset if you require them to sign your contract. This is a common misconception among entrepreneurs and other businesspeople, but there’s no reason to be afraid of asking somebody to sign something.
Indeed, they may not like it at first, but ultimately they need to respect your decision and realize that the contract protects them as much as it protects you.
3. Not Clearly Defining The Scope Of Work And What’s Included In It
Before you begin drafting your contract, you must be sure that everyone is on the same page about what it means to include or exclude from a project. If there are any gray areas or vague terms, then this can lead to conflicts down the line when one party perceives something differently than another party did at an earlier time.
This can be easily avoided by including a list of what is included and not included in your scope of work as part of your initial contract proposal.
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4. Negotiating On Price Alone
You should negotiate the price first, then the scope of work. If you try to negotiate both at the same time, you’ll inevitably end up compromising on one or both of them.
If you’re going to negotiate with a client at all (which isn’t always recommended), it’s best just to stick with negotiating price alone. Asking for more than what you originally agreed upon can put a lot of strain on relationships and make future work much more difficult.
5. Forgetting About Penalties For Late Delivery Or Substandard Performance
Penalties are usually a percentage of the total job cost, and they can be applied to late delivery or substandard performance. The penalty should be based on the scope of work and project complexity. It’s important to apply penalties to both parties.
If you don’t want any penalties, then make sure that this is clearly stated in your contract!
6. Negotiating your price without first providing a written estimate, then “asking” for more money later on because the project is bigger, harder, or more complicated than you anticipated
You can’t negotiate without a written estimate, and you can’t negotiate without a written contract. That’s because both of these documents are part of the legal agreement between you and your client.
If you haven’t provided either one (or both) before the client signs on to work with you, then any requests made after that time are just that: requests.
You’re asking for more money because the project is bigger, harder, or more complicated than anticipated? Well, maybe it is and maybe it isn’t. But since there’s no actual agreement between the two parties in place at this point, there’s no way to know for sure unless they take the time to write up an estimate and get their lawyers involved.
This leads us back to our original point: If someone doesn’t want their lawyer involved in negotiations early on in a project relationship be it an estimate or contract creation process then chances are good that s/he won’t want him/her there later either when things get sticky or an issue arises unexpectedly during execution phase(s).
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7. Failing To Write An Estimate At All Or Listing Only The Lowest Amount You Expect To Charge
An estimate is basically what you expect to charge for a project. You might think it’s better to get the lowest price in writing and save yourself some hassle and worry, but this can do more harm than good. Here are three reasons why:
It’s easy for clients to question your estimates if they’re not in writing. If a client asks you why your estimate was so much higher than he expected, he may feel like there’s something fishy going on; maybe even that you’re overcharging him!
Clients who are used to paying low rates will have low expectations and often think they don’t have any other options besides working with people making very little money per hour (i.e., under $15/hr).
So even if their budget is really big, it’ll be hard for them not only because of the initial shock but also since they won’t trust anyone else enough anymore either – all because of how much business owners like me might be charging them!
8. Avoiding Negotiating Fees Upfront While Still Attempting To Get The Lowest Possible Price
Avoid negotiating fees upfront while still attempting to get the lowest possible price; that way you can always negotiate once work is underway.
There are a lot of good reasons for this:
Negotiation costs time and money, so doing it at an earlier stage will save you both. You may also be able to negotiate a better deal, or at least have more leverage in your negotiations with the other party if they know you’re serious about moving forward with them.
Asking for concessions on price now can reduce your risk of having to change vendors or services later on in the project lifecycle when things get more complicated (and therefore expensive).
Creating official records helps ensure that everyone involved understands where all their responsibilities lie, as well as clarifying expectations about deliverables, payment terms, and more.
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9. Ignoring Copy, Appropriate Use Of Language, And Legal Disclaimers When Drafting Your Contract, Etc., Because They’ll Never Read It Anyway
When you’re drafting your contract, it’s important to use the right language. For example, you don’t want to use “you” when you mean “we.” Additionally, legal disclaimers are very important and can help protect you from certain types of liability.
They can also help demonstrate how serious you are about your business and ensure that the other party is aware of what they’re signing up for. Finally, copy (or text) should be carefully chosen so that it does not contradict any terms in the contract itself. For example:
In paragraph 2(a), we agree that Company X will purchase 100 widgets per month from Company Y at $10 per widget until December 31st, 2020; however, if paragraph 3(b) states: “Company X agrees not to sell any widgets after January 1st, 2021,”
Then paragraph 2 should either state something like this: “Company Y agrees not to purchase more than 100 widgets…” or something like this: “…and Company X must maintain at least 30% of its workforce employed full-time during this period.”
10. Negotiating Fixed Overtime Rates Instead Of A Flat Hourly Rate For Extra Hours Worked (Which Allows For Reimbursement By Fee)
Fixed-rate instead of hourly.
Overtime instead of extra hours.
Why: The main difference between a flat rate and an hourly is that a flat rate doesn’t take into account how much time a lawyer has worked, whereas an hourly rate does.
For example, if you’ve paid $100 per hour and bill your client for four hours at the end of the week (Monday through Thursday), you would earn $400 for those days’ work which doesn’t take into account Saturday morning when you were working on their case from 7 am to 1 pm or Sunday night from 5 pm until midnight.
If you are billing by fee rather than by the hour, there must be language in your contract detailing what happens if additional work needs to be done outside normal business hours (e.g., “all reasonable efforts will be made”).
This means that if someone works past 9 PM on Friday/Saturday morning/Sunday evening, they should be compensated for those additional hours at their normal rates without having to worry that their employer will refuse payment based on some arbitrary distinction between overtime and regular work hours.*
11. Keeping Invoices Separate From Contract Provisions And Not Including Them In The Contract
This makes it easier to track who paid what and when but also makes it harder to argue over inconsistencies if there are ever disputed charges or changes later on
Keeping invoices separate from contract provisions and not including them in the contract; makes it easier to track who paid what and when but also makes it harder to argue over inconsistencies if there are ever disputed charges or changes later on.
Invoices should be included in the contract, as they will serve as evidence of payment when there is a dispute. If you don’t include them in your contract, there may be an argument about whether or not something was paid for at all—or how much should have been paid for it!
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Conclusion
The purpose of writing a contract is to protect yourself and your clients against unforeseen events. It’s also important to write one that will help you make sure your business runs smoothly and efficiently. If you follow these simple tips, then you should be well on your way to creating an effective document that will benefit both parties involved!
Further Reading
Explore more resources on avoiding mistakes in contract writing:
Common Mistakes in Contract Writing: Learn about common errors that can occur during contract drafting and how to steer clear of them.
Contract Management Mistakes: Discover insights into managing contracts effectively and avoiding pitfalls that could impact your agreements.
Top 10 Mistakes to Avoid While Drafting a Contract: Get practical advice on steering clear of key mistakes when creating contracts to ensure their accuracy and enforceability.
FAQs
Here are some frequently asked questions about contract writing and common mistakes:
What are the typical errors to watch out for in contract drafting?
Contract drafting can lead to mistakes such as vague terms, inconsistent language, or inadequate details that could lead to disputes down the line.
How can I ensure my contract management process is error-free?
To ensure error-free contract management, establish clear processes for document creation, review, and approval, while also implementing effective version control measures.
What should I consider when creating a contract to avoid legal complications?
To avoid legal complications, focus on clear and concise language, accurate representations, proper identification of parties, and thorough clauses covering potential scenarios.
What role does attention to detail play in contract writing?
Attention to detail is paramount in contract writing to ensure precision and accuracy, minimize ambiguity, and anticipate potential issues.
Can contract templates help in avoiding mistakes?
Yes, contract templates can serve as valuable starting points, but they should always be tailored to specific situations and reviewed carefully to avoid overlooking important details.
Costantine Edward is a digital marketing expert, freelance writer, and entrepreneur who helps people attain financial freedom. I’ve been working in marketing since I was 18 years old and have managed to build a successful career doing what I love.
