OPERATIONS

The Lowdown on Contracts

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Like most people, small-business owners tend to shy away from signing anything. They avoid contracts like the plague. But this is a risky way to do business.

When you are making a major product or service sale or purchase, you need to get the details of the transaction in writing. If you don't, you will inevitably find yourself in the middle of a heated discussion over specific terms. Does the purchase include freight costs? Can sanctions be imposed if delivery isn't met? What if the services rendered are considered unsatisfactory? In many cases a purchase order and/or a written estimate will provide the answers to these types of questions and serve, in effect, as a contract.

For small, routine purchases and sales, you may wish to have an attorney review the basic purchase order or sales documents that you will be using. For larger or unusual transactions, you may wish to have your attorney review the contract you intend to use, if not draft it. After you have been in business for a while and have learned a thing or two from your attorney, you will gain the ability and confidence to write many of your own contracts.

For more important contracts, retain the original copy containing the original signatures from all parties. True, in many situations a photocopy or even an agreement without signatures offers adequate proof of a purchase or sale agreement, but nothing can beat an original copy as legal protection.

Any substantive changes to a contract should be noted in writing. If they are in the body of the contract, then each change should be initialed by all parties involved. If it is in the form of an addendum, it should be signed by all parties involved. A contract should specify that it represents the entire agreement between the parties and that any changes must be in writing.

To avoid court and the legal costs associated with lawsuits, contracts should, generally, have a clause specifying that disputes will be arbitrated. The method of arbitration should be stated, and the results of the arbitration should be held binding.

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Last updated: May 2, 2000




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