How to build a solid and secure contracts as a contractors

Contracts serve as a broad element of security for both contractors and clients. In fact, a contract represents where a particular service that is provided by a contractor begins and ends. The definition of a contract is an agreement between you or your business and the clients or customers you serve that outlines the terms and conditions of the services you will be providing. Other important elements that are generally stated in contracts include timelines, costs, payment terms, etc.

Many service contracts have a similar format. This general format includes information that must be present in the written contractual agreement for the contract to be solid and secure for both parties:

1. Both parties’ contact information: The parties in a service contract are you, the contractor, and your client. Thus, the full names, addresses, and other contact information of both parties should be listed in the contract.

2. Outline of service and work: This is the work that is to be done for the client. It is to be described in full detail. And yes, even the finest details are essential.

3. Timeline of services: The start and finish dates of the contract as well as a detailed schedule of work in between. 

4. Payment terms: This includes the amount and means of payment. For instance, if payment is required upon the completion of a project or to be made in increments over the course of the project, this will be specified. Or if payment is to be by business check, business charge card, cashier's check, or cash, this will also be specified. The date as of which payment will be due is also stipulated.

5. Insurance and compliance terms: These are to ensure that all risk protection and management policies are in place.

6. Indemnification terms: If any party is to be exempt from liability for any kind of damages, this must be spelled out in the contract.

7. Warranties: Warranties are intended to clarify the rights and obligations of both parties, and will often explain what should happen if something goes wrong. They are also protective instruments.

8. Default terms: A default is where one party fails to perform a contractual obligation. Default terms in a contract will spell out exactly what constitutes a default, following which a claim for damages may be instituted.

9. Dispute resolution and remedies: Some contractors prefer to draft these dispute resolution and remedy clauses into their agreements to enable the resolution of disputes in a fair, timely, and cost-effective manner.

Once the signatures of both parties are appended to a contract, it becomes binding on both parties. Thus, care must be taken so that no essential term, condition, or detail is omitted.

Tips for Making Solid Contractor Agreements (Contracts)

All contractors need to follow these guidelines to guarantee that their contracts are secure and enforceable when doing business.

1. Prepare written contracts: Oral agreements may be legal and binding in many situations, but they can be very difficult to enforce in court. In certain situations, they may not even be enforceable at all. A written contract eliminates the risks of unenforceability and confusion or disagreement over contractual terms in a court of law. The need for writing also includes any alterations that may be made to the contract along the line.

2. Do not miss a single detail: The contract should outline every right and obligation of each party in detail. Out of all the terms and information we have listed above in the general format for contracts, as well as any other necessary details, none of them should be skimped on or glossed over.

3. Your contract should be governed by one state law: This is especially important if you and your client are residents in different states. You should choose only one of your state's laws to apply to the contract. This will help to avoid unending disputes in the future and simplify resolution if disputes do arise.

4. Refer to businesses and people with their legal names: It’s important to always identify the people you are dealing with correctly with their legal names in the contract. Each party (including yourself or your business) should have a clear responsibility stated in the agreement. This way, each party knows what they are contractually obligated to do. If you are dealing with a business, make sure to include its correct legal name plus any appropriate suffixes like Inc. or LLC.

5. Opt for simplicity: You do not have to get all verbose or wordy in your contracts—which is what many lawyers tend to do. You are a simple contractor, so keep the content of your contract simple and straight to the point with short, clear sentences and (very important) distinctly numbered paragraph headings that let the reader know what each paragraph focuses on. Also, avoid ambiguous terms like “good faith,” “best efforts,” or “reasonable.”

6. Make payment obligations clear: Payment terms lie at the very heart of any contractor agreement. The compensation is the reason why any contractor would even enter into a contract in the first place. Thus, you need to be very precise and detailed in spelling out your payment terms.

7. Decide on termination terms: A good example is a circumstance when a client misses too many important payment deadlines. It can be agreed during negotiations prior that the other party should have the right to terminate the contract without being held liable for breaching the agreement.

8. Confidentiality is key: Your contract should contain a section where both parties agree that any business or sensitive information that is learned or shared throughout the duration of the agreement is strictly confidential.

9. Always deal with managers or owners: If you are entering a contract with a business and the person you are negotiating with does not have the authority to make decisions that bind the business, you may well be on your way to entering into an unenforceable contract. Always contract with someone who is in charge or that has the requisite authority to enter into deals for the business.

10. Have clear dispute resolutions: Instead of going to court, both parties can agree to settle disputes through arbitration or mediation in a dispute resolution clause.

The Benefits of Making Solid Contractor Agreements

Many contractors enter into unsafe contracts that open them up to consumer fraud lawsuits. This is because they fail to follow the right format and include everything essential to making a solid contractor agreement. Some of the mistakes and omissions that are mostly used to ensnare contractors for consumer fraud violations include:

1. Not having the “3-day right to cancel” on your contract (this gives signers the right to cancel after a few days of signing).
2. Not having warranty information on your contract.
3. Not having a start and finish date.
4. Not itemizing and detailing the scope of work and products you may be using.
5. Initiating a change in the contract that is not in writing and signed by the other party.

The most common one is not having a start and finish date. Many contractors omit this because they have never really figured out exactly how long it takes for them to complete their projects. Thus, they see it as too risky to input a definite timeframe into their contract. The best and easiest way to solve this problem is by implementing an effective time-tracking solution into your projects.

Time-tracking software will give you a good idea of the average time different types of projects take for you to carry them to completion. You can then use this information to input a timeframe into your contract that will be sufficient for you to start and finish the project. This will also help to keep your contracts accurate, fair, and legal.

The second most common omission is making an alteration to the contract that is not in writing and signed by the other party. One example of this is agreements on the color of paint when painting a house. A painting contract with a homeowner contains the color requirement “dark green”, but when the paint is supplied, the product provided is “medium green” because the supplier made a mistake. Rather than waste more time waiting for the delivery of new supplies, the contractor asks the homeowner if “medium green” is okay and the homeowner says yes (verbally, not in writing). This may seem like a very minor change, but trust us, it is not.

If, for example again, the homeowner suddenly changes their mind and does not wish to pay the final balance at the end of the project, the contractor will logically sue them in court. However, the homeowner’s attorney can easily counter the contractor’s suit by filing a consumer fraud lawsuit, using the opening provided by the contractor’s omission to have the changes to the contract documented and signed by both parties.

A consumer fraud lawsuit can wreak havoc on your business and easily bankrupt your company because you are opened up to tens of thousands of dollars in attorney fees as well as treble damages (3 times the amount of the contract awarded to the client who files a consumer fraud lawsuit). And the court will not be concerned about how honest you have been as a contractor or how good your reputation is in its ruling against you. Therefore, the best way to protect your business against consumer fraud lawsuits and clients that will try to desert their obligations is to make contracts that are solid, secure, and fully enforceable in a court of law.

Whenever you draft up your next contract, make sure to include the above tips to protect yourself and your business, as well as keep a professional and trustworthy rapport with your clients. To help you create more accurate contracts, try Atto today and start tracking the hours worked on projects.