The wording of a contract is never as important as its key elements. If your contract doesn’t contain all of the necessary provisions, then you might not be as protected as you thought you were. Lawsuits are won every day because of a missing sentence or because of an ambiguous clause, so if you are thinking that your contract is perfect as is, double-check it using this handy contract checklist.
Contract Key Element #1: Party Identification
– NAMES. Your contract should begin by identifying the names of the two parties who will be signing the contract.
– AFFILIATION. If the two people who will be signing the contract are representing companies, corporations or organizations, this should follow the names of the parties.
– CONTACT. It is often a good idea to include contact information for each of the parties in the first paragraph of the contract, including addresses and phone numbers as applicable. This is especially important for a contract between two people or entities who do not live in the same state.
Contract Key Element #2: Recitals
– BACKGROUND. Briefly state what circumstances have brought the two parties together in the form of a contract.
– PURPOSE. What is the purpose for the contract or agreement? Be very clear and literal.
– ASSUMPTIONS. What roles will each of the two parties be assuming for the duration for the contract (i.e. employer and website designer).
Contract Key Element #3: Obligations
– REQUIREMENTS. What actions or obligations will each of the parties be required to fulfill before the term of the contract has passed?
– DATES. By what date (and time, if applicable) must the terms of the contract be met by both parties?
– DELIVERY. If there are deliverables, list what they are, who will pay for the delivery, the method with which they will be delivered, and any applicable timetables.
Contract Key Element #4: Terms
– LIMITATIONS. Some contracts are made for an indefinite period of time, while others expire once a project or usage has been completed. Detail exactly when and how the contract will expire.
– RENEWAL. If there is a required renewal for the contract, state when and how it can be extended.
Contract Key Element #5: Price
– LIST. Include a list of all costs, prices or monetary obligations for both parties.
– FORMULA. How are prices or costs determined? Include by the hour, by the project, by usage, or whatever method with which costs are formulated.
– TAX. What sales tax applies, if any, and how will it be calculated, and who is responsible for covering those taxes?
Contract Key Element #6: Payment Terms
– DUE DATE. When is payment for goods or services due? (i.e. Monthly, weekly, a timetable, upon completion, etc.)
– INSTALLMENTS. If one party is expected to pay in installments, give the exact dates when each payment is due.
– INTEREST. Include any applicable interest rates for installments or for credit, and make sure to include whether state limitations are enforced.
– PENALTIES. If payments are late, what penalties, if any, will be charged? (i.e. $5.00 for each day the payment is late).
Contract Key Element #7: Representations & Warranties
– REPRESENTATIONS. What representations are afforded by both parties?
– WARRANTIES. Under what circumstances will warranties be allowed?
– DISCLAIMERS. Under what circumstances will warranties be disclaimed?
– EXTENT. When will warranties expire?
Contract Key Element #8: Liability
– LIABILITIES. What liabilities do both parties exclude themselves from?
– ASSIGNMENT. Assign liabilities under specific circumstances for which you see a verifiable risk.
Contract Key Element #9: Termination of Contract
– EARLY TERMINATION. Under what circumstances can one party terminate the contract early?
– CONSEQUENCES: What penalties will be in place for early termination?