Common mistakes when entering into a contract

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Table of Contents

• Informal Agreements
• Standard Form Contracts
• Non-negotiable Contracts
• Conclusion

If you are a business owner, you will no doubt be engaging in contractual negotiations on a fairly regular basis. In fact, entering into a contract is probably one of the most common business activities that a business owner will do on a day-to-day basis. When you purchased your equipment, you probably entered into a contract. When you first hired someone, you almost definitely did so on a contractual basis by having him or her sign an employment agreement.

The fact is, entering into a contract is advisable with any commercial dealing. In running your business, it is vital that you enter into a contract with any person or organisation you do business with. Part of contracting correctly is learning from the mistakes that other business owners have made, and avoiding the most common pitfalls.

Informal Agreements

Informal agreement are never an ideal way to do business. It would be ill advised to put your faith in another party who promises to keep to their word, even with friends and family. A handshake is not necessarily binding, nor is a verbal promise. For this reason, it is never a good idea to enter into any dealings with other commercial entities, unless, at a bare minimum, you have some record of the agreement or transaction, such as an invoice. It’s important to consider any and all aspects of your business negotiations in which you supply, or are supplied with, any goods or services, and to make sure there is a record that accurately reflects the details of these dealings.

Make sure to implement contracts whenever your clients have ongoing needs. A legally binding contract will help to secure your commercial interests in the event that something goes awry. Equally important is updating your contracts so that the terms and conditions that form the contract reflect the most recent agreement between the parties. In other words, if something changes, update the contract!

A fairly commonplace scenario between parties is where the contract stipulates that one party will pay a certain amount for specific work, and then at a later point, the party doing the work offers to do extra work outside the scope of the contract at an hourly rate. Unless the contract is amended to reflect the changes in the agreement, it will be very difficult to get paid for this extra work if you were relying solely on the terms of the contract.

Standard Form Contracts

Standard form contracts are ordinarily created by industry bodies or government organisation, and are used in certain industries. One example would be the contracts produced by Standards Australia.

The important takeaway when it comes to standard form contracts is to remember that these contracts are not necessarily designed to reflect the negotiations between two parties, hence why they’re called “standard form”. Another point to keep in mind is that these contracts will not always equally consider the interests of both parties. These contracts will not uncommonly be skewed in favour of one of the parties. For this reason, it is worth having a lawyer review the clauses to help you determine your level comfort going forward. If there are certain terms you wish to remove or modify, communicate this with the other party until the contract serves your interests.

Non-negotiable Contracts

For all intents and purposes, all contracts can be negotiated one way or another. Never surrender simply because a contract is supposedly “non-negotiable”. Every term that doesn’t serve your interests can and should be negotiated.

Conclusion

Don’t skim through a contract you’re about to enter. Read the entire document thoroughly, or at least have your contract lawyer do this for you. If there is a clause that is not in your best interests or is overtly unfair, seek to have it removed or amended. If you need assistance in reviewing or drafting a contract, get in touch with LegalVision on 1300 544 755.