In brief - Don't sign a contract if you don't
understand it and get advice if you need it
Make sure you get everything in writing, don't assume that a
standard form contract is in your best interests and don't let
anyone tell you that a contract is not negotiable.
Getting contracts right is one of the most important skills in
If you run your own business, you enter into contracts all the
time. Whether you realise it or not, contracts are a major part of
what your business does day to day. You entered into a contract
when you leased your premises. You entered into a contract when you
purchased your stationery. You entered into a contract when you
hired your first employee.
Contracts are a fact of life in business. One of the most
important skills you can learn in business is how to get a contract
right. An important part of getting a contract right is learning
from the failures of others. Here are three pitfalls to avoid.
"We do business on a wink and a
Not any more. The only way you can make sure you're covered
if things go awry is if you have everything in writing. If
you're doing deals without at least a purchase order and an
invoice, you're heading for trouble.
Have a look at each and every transaction where a person
supplies you with goods or services, or where you supply goods or
services, and make sure there is a paper trail showing the business
that you have done. Murphy's Law dictates that it will be your
biggest transaction that comes back to bite you if you
Get contracts in place for any ongoing transactions. A properly
drafted contract will protect your rights and give you a leg to
stand on if the other party decides to go off book.
It is just as important to make sure that if the scope of your
agreement changes, you vary the contract in writing. A common story
I hear from clients is that "we had a fixed price contract,
and then he asked me to do extras and said he would pay me by the
Well unfortunately, that's not what the contract says, and
while they may have done significantly more work than what is
stipulated in the contract, those people will have an uphill battle
to get paid anything over the contract price.
"It's a standard form
Standard form contracts are often produced by industry or
government bodies for use within a particular industry. Standards
Australia, for example, produces a number of contracts for various
The tip here is that just because it is a "standard
form" contract does not mean that it reflects the terms on
which you intended to contract with the other party. It also does
not mean that the contract is not weighted in favour of one party
Standard form contracts can still contain provisions which are
not in your best interests. Read every clause and think about
whether you are comfortable with it. If not, speak to the other
party about removing or changing it.
"This contract is not
Every contract is negotiable. You're about to hand over your
hard earned cash. You have every right to negotiate the terms under
which you do that. I often recommend to clients that they amend
certain clauses in their contracts, to which they respond "I
don't think we can". Of course you can.
Read every page (yes every page) and make sure
you are comfortable with the contract and how it operates. If you
are not happy with a particular clause, negotiate to have it
changed or removed. If you do not understand a particular clause,
seek advice to make sure your rights are properly protected.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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