Common Issues with Business Contracts
Whether you are dealing with a business partner or a new client, it is important that you utilize well-crafted contracts. As contracts are an integral part of most businesses’ everyday operations, if there are issues with how the contracts were created, the negative implications are huge. Furthermore, every type and size of business is vulnerable to legal issues stemming from contractual mistakes.
You Have Not Detailed Contract Breaches
When creating a business contract, you must consider different scenarios that may cause the relationship to break apart. Furthermore, when considering these scenarios, you must also work through how to solve the issues breaking the relationship apart. Additionally, you must also ensure that you can leave this business relationship without legal recourse. Examples of reasons why you may have to terminate contracts include late product deliveries, a lack of work from the other business that entered into the contract, or a customer that is not paying their fees.
When creating a business contract, you should include all the potential contract breaches that apply to your specific situation. This is beneficial for two reasons. First, by including these breaches, you are protecting yourself legally. Second, by taking the time to consider all the possible reasons for contract breaches, if these issues do occur, you will be able to mitigate damages.
The Contract Does Not Include Dispute Resolution Provisions
If issues with your business contracts do occur, settling these disputes through traditional litigation is both expensive and time-consuming. Thus, to avoid unnecessary legal fees and wasted time, it is wise to include a dispute resolution in your contract.
This provision should state that if a dispute does occur, both parties must utilize a form of alternative dispute resolution such as mediation or arbitration. Both of these options save you money and time while still offering avenues for both parties to settle their disputes. One important note is that arbitration is not binding. Thus, the loser of the case can choose to disregard the decision. On the other side, however, mediation is a binding agreement. So, if you choose to use this form of alternative dispute resolution, both parties must accept the decision.
You Have Not Established the Relationship with Other Contracts
In many cases, a business will have utilized multiple contracts with one entity. In this scenario, you must state in the newest contract how this document fits in with the other forms. There are multiple ways that you could fit a new contract into an existing relationship. The first way you could do this is to state that the new contract supersedes all previous agreements. Another way you could navigate this relationship is to state that the new contract takes precedent over certain parts of the older agreements but in other cases, the old contracts are still valid. However, you must specifically state exactly how this new document fits into the rest of your business relationship.
The Contract is Overly Vague
One of the most common causes of issues within business contracts is when the contractual language is overly vague. Putting vague language within a contract may help the other party agree to the partnership initially. However, vague language can lead to many legal issues in the future. Thus, a vague contract may excite parties as there are not many restrictions on the business relationship. However, vague contractual language almost always leads to legal problems.
The most common issues stemming from vague language include issues when the parties are trying to figure out what they can or cannot do within the business relationship. However, what is not included in the contract when vague language is used is just as problematic. Thus, the more specific, clear, and exhaustive language you use in the contract, the better.
The final common issue affecting business contracts is performance metrics. While this is more commonly an issue in business to business contracts, it can also occur in some consumer contracts. Thus, providing clear and specific performance metrics is key to ensuring that both parties will stay happy throughout the partnership. The reason for this is that including these performance indicators allows both parties to understand what is expected of them in the relationship.
While there are some common pieces of information and ways to format the performance indicators, the metrics that you include in this portion of the contract are largely dependent on your individual situation. For example, the performance indicators you include in the contract will change if you are working with a factory, consultant, or purchasing director.
Contact Our DC Law Office for More Information
Finally, for more on common issues with business contracts, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding business law, check out our blog.