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Tuesday, 8 December 2015

Basics of a 'Good Contract'

You will be well equipped to develop agreements that are thorough, clear and fully enforceable, here are some important steps you should take before signing any contract:-

  • Before beginning a negotiation, ask your counterpart to clarify his ability to make a commitment on behalf of his organisation. You should also carefully delineate negotiating authority in your own organization before getting down to business.

  • You could ask the contractor to agree to a price reduction in the event that he does not finish the work on time. Before you craft a contingent contract, take time to consider whether other side is better informed than you are about the issues at stake.

  • To overcome contract breach in several ways, meet the contractor at regular intervals to review your progress during the life of the contract. This provides you an opportunity to nip potential problems in the bud while also strengthening your relationship. Dispute resolution clause will help you in case of any dispute which may arise in future.

  • Include liquidated-damages clauses in your contracts, specifying the amount to be paid if the contract is breached. Liquidated-damages clause will make any future court hearing much more straightforward.

  • Whenever possible, you and your counterpart should both sign a formal, binding contract. When logistics make this impossible, eliminate ambiguity by taking thorough notes during telephone calls and retaining as much documentation as possible.

  • To ensure that your contract accurately reflects both sides' understanding of the deal, follow these steps: (i) Start by sharing the motivations behind the deal with your lawyer to avoid mistakes in clauses / terms. (ii) Take time to read the completed contract yourself. Encourage your counterpart to read it carefully as well, and then discuss any areas of confusion with your lawyers & (iii) To avoid misunderstanding the legal jargon, ask your lawyer to explain them in a simple and plain English. Ask "What if?" questions to make sure that you have covered all the bases.

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