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Steps to Create a Watertight Contract
January 22, 2025A contract is serious for any participating party. These are legally binding agreements and they protect your interests, even if things go wrong. You need to consider exactly what goes into contracts you sign, whether with suppliers, clients, or other third parties. Even a perfectly drafted contract is no insurance against bad behavior. Someone who is intent on breaching an agreement will go ahead and do so. But a well-thought-out contract that accurately and completely describes the details of a business agreement can prevent accidental misunderstandings and the expensive litigation that may follow.
8 ways to create a watertight contract
1. Negotiate
While discussing your contract, keep written, dated notes, lists of the items discussed, and the settled-upon resolution of open items. A contract an agreement of terms and conditions between 2 or more parties. It is thus important that the parties reach an agreement on important and even unimportant issues.
2. Document negotiations
The terms, conditions and issues should be written down in easy language and circulated among all the parties to the contract to ensure that everyone can share their thoughts and concerns before signing, to avoid future troubles.
3. Work with an Attorney
Take your memo, lists, and notes to an attorney for his or her review and revision. Your attorney's job is to catch issues you may have missed. An attorney is worth the investment as he or she will ensure your contract is complete.
4. Define terms
Your attorney will almost certainly add a section that defines key terms. This is a simple measure to prevent misunderstandings and is one of hallmarks of quality legal drafting. Be sure to get inputs on the meaning of terms in your industry.
5. Plan for disputes
Include some non-judicial remedies in the event of a breach. These may include insurance, indemnities agreements, or mediation. This is important to consider. Everyone loses in a lawsuit, so it is best to decide how to solve disputes out of court before any arise.
6. Payment consideration
Consult your lawyer for advice on the payment terms. Should money be held in an escrow account to be released upon the achievement of certain benchmarks or should it be released immediately? Should there be a penalty for late performance or an incentive to complete it early? What remedies are available if a contractor abandons a project and it never gets completed?
7. Don't start until it's signed
Don't start any work or exchange any money before the contract is signed.
8. Monitor performance
Record any changes or developments surrounding a contract. keep the written record up to date as well.
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