How to recognize a bad contract

Whenever someone will do work for you, you’ll need to draft a contract. Formal contracts will make it clear everyone’s responsibilities and will frequently avoid misunderstandings and conflicts when things go wrong. Most companies will have their compliance or legal departments draft or review the contracts to make sure they are solid and don’t have holes in them. It is useful for you to know what a contract should look like before it is sent to the compliance department and also to recognize potential problems with a contract. Here are a few of those problems.

The name of the project is not clear. This can be a problem because it can cause confusion. Frequently projects may have similar names. What if you had two projects in the organization one named “Operating System Upgrade” and the other “Windows 7 Upgrade”. They sound the same except when you go into the details you realize the first one is for a Unix server upgrade whereas the second one was only for the laptops.  It is good to have serial numbers for projects and not just rely on a name. That way everyone knows what everyone is talking about. A clear description of the project is also very important.

What needs to be done or who is responsible for what is not clearly defined. No one will know what is included or what is not. So if you had hired a contractor to replace your kitchen counter top, was it clear that he was supposed to remove the old one first and was that stated in the contract? If not, he might assume you will have the old one removed before he shows up to install the new one. Take it one step further, make sure the work to be done is described in detail, diagrams and blueprints are provided where appropriate. Anything that makes it more specific what needs to be done as opposed to some general idea of what needs to be done is the way to go.

How the work will be approved is not defined or clear. If you don’t put down exactly what will be acceptable then you won’t have a leg to stand on. It will also make it difficult for the people doing the work to know what the expectations are.  So let’s say you brought in someone to fix your air conditioner and the contract only said that the conditioner should be made to work again. After the fix you find that the temperature at the grill is only 18 degrees centigrade whereas it should be 11 degrees centigrade. However the AC is working technically speaking. You might find yourself arguing or forced to accept the fix and pay for it even though it is not up to standard. Be specific in your contract.

There is no mention of how or when payments will be made for work done. Almost always, contracts will say“how much” will be paid. When and how the payments will be made may not be clearly laid out. Half now and half when the work is done, paid by cheque is very specific and makes it very clear.

There is no mention of when the job is to be completed. What if your contract did not specify that a contractor has to have your kitchen completed by 5pm on the 15th of June, 2014? If it doesn’t then the contractor will technically be able to start your kitchen and half way decide to accept another job for someone else, leave you hanging without a kitchen for a couple of months and then come back at his leisure to complete your kitchen. You might think that people won’t do something like that. But it does happen all the time.

There is no mention of what the rules are if anyone changes their mind about something. This is a tricky one. If you don’t have anything like this, you will not be able to change your mind and if you do, the contractor can penalise you anyway he wishes. In some cases there is no need for this clause. In most cases there is. You need to have some mechanism to allow you to revise your requirements within defined parameters and allow the contractor room to accommodate that within reasonable parameters as well. Both sides have to be reasonable. Obviously you can’t expect to change your mind by expanding the work without the contractor being allowed to change the price.

There is no mention of what happens if either side don’t hold up their end of the deal. If you don’t have this then it won’t be clear what the penalties are and everything will have to go to court. That would be very expensive. Honestly mentioning just what the penalties would be for breach of contract is not likely to prevent a breach or prevent things going to court. It is more for completion. No one really goes into a contract planning to breach it unless they are intent on fraud. Adding this in might help send the case for arbitration rather than court and save some money. Either way, for this part you will really need your lawyer’s or compliance department’s input.

There is no mention of warranties. So after the work has been completed and you paid the full amount for it, a couple of weeks later everything that was built falls apart. What do you do now? There has to be a warranty period on work performed. This ensures that the work is completed to a specific standard. Ask for a warranty that allows you to monitor and ensure that the work was completed correctly. If you have had a custom application created for your organization, if there is a major problem then it will show up in the first few days. A one month warranty on obvious bugs can be requested. The definition of what a bug is, specifically that something is not performing as was intended, needs to be clearly stated. Anything beyond a normal warranty would constitute a support contract which is a separate item altogether.

Remember, read contracts carefully, look for loopholes. Do not make assumptions about things that are not specifically mentioned in the contract but that should be. Your interpretation or assumption could very well be different from others who are also signing the contract. Make sure everything is clearly laid out in plain language even alongside all the legalese. And remember, contracts are intended to make things clearer and easier, not to over complicate things or to drive deals out the door. They are intended to bring people together to close deals, not to break them up.

Hope you found this useful. Please send me your feedback. Add a comment.


Thanks for reading.


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