Drafting an effective contract: A road map for the parties….

Drafting an effective contract means 1) drafting an enforceable contract; 2) drafting a contract that is specific as to the work to be completed (scope of work);  3) drafting a contract that sets forth the specific amount of money to be paid, as well as when funds are due based on a certain percentage of work done; 4) drafting a contract that guides the parties in dispute resolution.

Drafting an enforceable contract: to be enforceable, a contract must have an offer and acceptance . There must be a meeting of the minds as to the essential terms of the contract. At a minimum the contract should describe the work to be done and the payment to be made for that work.

The contract should also be signed and dated by both parties to indicated their ascent to the contract terms.

Scope of work: Including a specific scope of work is critical. It 1) allows the contractor to more accurately estimate the job; 2) it eliminates questions as to whether work should be the subject of a change order or part of the original work; and 3) it allows the provision of a product closer to what the owner had envisioned in terms of the amount of its expenditure.

Payment schedule: Including a payment schedule 1) gives the contractor direction as to what cash flow is needed for the job and assures the contractor that it will be paid and in what amounts as the job progresses; 2) provides the owner with a mechanism to control the amount of money paid as the job progresses; and 3) provides a mechanism whereby both parties will know what is required to be submitted support wise and to be paid and when payment should be made once the proper information has been provided.

Dispute resolution: An effective contract will include a mechanism for how potential disputes are to be handled between the parties. Alternative dispute resolution (mediation or arbitration) can be a very cost effective way to resolve potential disputes.  Neither procedure is mandatory though unless it is included in the contract as part of the resolution process. Even if mediation is mandatory, a party cannot be compelled to settle their claims and arbitration or litigation may be needed. Including a mechanism for how disputes shall be resolved can greatly reduce the cost of litigation and economically beneficial for all involved parties.

A Road Map: An effective contract acts as a road map for the parties and guides their actions with respect to the project at issue. The more that is spelled out in the contract, the less questions will arise in the event of a dispute. Insisting on a comprehensive contract is a proactive way to define and contain project costs.