Conquering Contracts: Slay Your Service Agreement Revamp
Many of my clients experiencing a lull in business due to the pandemic are using this time as an opportunity to review and revamp their business systems, including their service agreements. As you might know, I focus on lifting up fellow female founders by providing them with practical legal tips as well as unsolicited advice on developing business as a WOC entrepreneur.
Today, I wanted to offer a simple checklist as you look at your agreements. Note that this post is not legal advice and it is simple generic educational information that is not specific to your business. This article is not a substitute for legal counsel and is merely providing preliminary guidance on contracts. If you are concerned about the content of your service agreement, you should contact a lawyer.
One of my favorite quotes about contracts comes from the iconic Willy Wonka and The Chocolate Factory. Gene Wilder, as Willy Wonka, asks Violet Beauregarde’s father - an arrogant businessman willing to move the earth to get his spoiled child whatever she wants - to sign a waiver before entering Wonka's factory. Mr. Beauregarde responds haughtily: "Don't talk to me about contracts, Wonka. I use them myself. They're strictly for suckers."
Had he not ultimately signed the waiver, Mr. Beauregarde may have had some recourse against Wonka after his dear daughter Violet turned violently violet as a human blueberry during their tour of the factory. But, as the story goes, he did, and the rest is fictional history.
Let's start with the basics. What is a contract, and why do you need one?
A contract is often referred to as "a meeting of the minds," "a bargained-for exchange," or "a mutual promise supported by consideration." Instead of getting bogged down in the legal-ese, it is important to first talk about why it is prudent to have a written service agreement.
Why You Need a Service Agreement
Define Roles and Limit Liability. A properly drafted service agreement will clearly state who the parties are and what each party's responsibilities are under the agreement. A service agreement can also limit liability and provide for methods of dispute resolution. Contracts help define the scope of legal liability that each party has in the event of a breach of the agreement. For example, if you fail to make a delivery or a meeting, what are the consequences? A properly drafted service agreement can clarify both duties and consequences for failure to meet those obligations.
Create a timeline for mutually agreed upon logistics. A properly drafted service agreement will not only state what responsibilities are owed by each party to the other, but it will create a timetable that the parties can rely upon in determining when and how the contract obligations will be carried out. Simply put, a contract tells all the parties who is doing what by when and how. Quite literally, it gets the parties on the same page.
Get What You're Paying For. If you're the client in a service agreement, a properly drafted agreement will ensure that you get everything that you've paid for.
Get Paid. If you're the provider in a service agreement, use of certain clauses and contingencies can ensure that you are paid for work that you've completed, even if the project cannot come to fruition. It can also provide you with ways out of the agreement when you're dealing with a particularly difficult client or extraordinary circumstances.
So, what do you need to look for in any service agreement that you sign?
Contract Key Component #1: Who
Who is entering the contract – you or your business entity? Using your personal name instead of a business entity can open you to personal liabilities. If using your business entity, make sure it’s in good standing by visiting the IL Secretary of State’s website (www.cyberdriveillinois.com) and visit “Business Services.”
Who is entering the contract on behalf of the other party? If it’s a business entity, is it in good standing? Use the website above to do a quick check of the business. If you’re still feeling uneasy about who the other party is, do a quick search on the county circuit court clerk records to see if they are party to any litigation, and if you’re really nervous, hire a lawyer to do a little due diligence on your behalf, or better yet, WALK.
If you’re giving something away, like rental property, make sure you do your due diligence on the other party’s credit history. Get guarantees and assurances where needed. Don’t be afraid to get the assurances you need to be comfortable, financially and legally.
Contract Key Component #2: What
Now that we know who the players are, what are they doing? What is each party doing, and what are they getting in return for whatever they are agreeing to do?
Does the agreement specifically state what you are to receive in exchange for the service/product that you are providing?
Does the agreement clearly state payment terms and consider whether payments are refundable?
Contract Key Component #3: When
Does your contract have a start date?
Does your contract have an end date?
What are the penalties if you terminate early? Because… life happens.
What are the penalties and your remedies if the other party terminates early? Because….life happens.
If you are to receive or provide deliveries, is there a set time frame? Are there provisions for delays caused by forces outside of your control?
Contract Key Component #4: Where
Does the contract say where performance is to take place?
If performance is to take place at a site hosted by the client, what do you need to conduct your services? Make sure those needs are spelled out in the agreement.
If records or materials are to be kept in the course of the relationship between the parties, does the contract state where those materials are to be kept?
If you are hosting an event, do you have COVID-19 requirements in your contract for anyone coming into your place of business?
Contract Key Component #5: Why and How
Don’t leave things to chance. If there is a question about how something is to be accomplished, get it in the contract, in writing, signed by the parties.
Be sure that all logistics are accounted for in your agreement. There’s no need to fight about costs of delivery when you could have fronted that by including it in your agreement.
Do your due diligence before signing a contract with anyone.
If there is something in particular that you need to carry out your services, don't rely on verbal discussions. Get it in writing, or reconsider the relationship.
If you're like me, your business is your baby, and you treat it delicately with careful and constant attention. That's why making sure your service agreement reflects your value as a business as well as your values as a business owner. Remember, you can always choose not to enforce a contract provision against a client, but you don't have that choice unless you have a properly drafted service agreement.
Given the pandemic, I am excited to announce that my firm Nemani Law is now offering special contract review packages for fellow female founders. If you're a woman or minority and need help with reviewing your business's service agreements, check out our new contract review packages here and shoot me a note at priti@nemanilaw.com to get in touch. We are here to help make sure that you and your business are protected.
Until later.
Yours, in Power,
Priti
Priti Nemani aka The Boss Lady's Lawyer
