Writing a contract, even for professionals, can be very complex: regulations to be applied, customer needs, difficult negotiations. We have summarized three rules for writing a good contract. Let’s see what they are
Let’s take an example: in 2010 you signed a 4-year consulting contract. When you reread it before signing it, it all seemed clear, reasonable.
Two years go by and you want to change the consultant because you have received a more attractive proposal that costs you less.
Go read the contract again to see if you can end relationships without any problems.
You read and reread it but some clauses are no longer so clear to you.
You go on and realize that to terminate the contract you have to pay a penalty of € 20,000 and that, in the event of a dispute, arbitration is expected in London!
How could you have signed such a thing? How much will it cost you? How do you get out?
RULE n. 1 – When you are about to sign a contract, think about re-reading it after 3 years and ask yourself:
– If I reread this text in 3 years, will everything seem clear to me?
– Is that commitment that I have signed feasible? In those times?
– Have I clearly specified what I have to do and what the other contractor must do?
– What could change in time that I have not foreseen today?
– Have I indicated the deadlines well and what happens if they are not respected?
– Will I be able to pay that penalty? Can I provide another type of sanction?
– Why have I not provided for the right of withdrawal?
– Why did I not insert a termination clause from the contract if the other does not perform a service or performs it late or not in a workmanlike manner?
RULE n. 2 – Write clearly and simply.
The contract, once signed, must be understandable even to those who have not participated in his training.
An example: you are about to sign a contract with a business finder to increase your turnover and you have agreed to pay him certain commissions. Let one of your collaborators read the text, who asks you for explanations on the calculation of the commission because he does not understand. In these cases, why don’t you give an example or attach a diagram?
Your superior reads one of the clauses, rereads it and resignedly asks you what it means: do not explain it to him. Rewrite everything simplifying, and then have him reread it. If he understands, it means that you have written well, otherwise rewrite until it is understandable to everyone.
a) Write in Italian, not in bureaucratese.
b) When using a legal term, be sure of its exact meaning.
c) Describe exactly the object of the contract, the services that the parties undertake to perform. Don’t limit yourself to generic expressions.
d) Always enter who you are, who is your counterpart, what is the purpose of the contract and the commitments that each one assumes.
e) Use the same name when you have to indicate the same concept, the same legal institution, the same contractor.
f) If you are unable to describe something precisely, give an example or attach a diagram.
g) Print the text and reread it a couple of times.
h) Have someone read the text who did not participate in its drafting and negotiation.
RULE n. 3 – Be precise, consistent, balanced.
The contract establishes obligations, rules, terms, which usually respond to the interest of those who first submit the draft agreement.
For example: you have to contract out the construction of a warehouse. The contractor sends you his 20-page draft contract.
After rereading it a couple of times, you realize that the delivery terms are not clear as there are at least four incomprehensible extensions, there is no assumption of responsibility if the work is not performed as you would like, most of the clauses are in his favor, there is a reference to a “previous article” that has nothing to do with it.
What to do? Throw it out and rewrite everything using a contract template that you will adapt to your needs.
a) Enter the date of entry into force of the contract, that of its conclusion and the expiration date.
b) Identify the effective date with a certain date (for example: from 2 December 2012).
c) If you have to refer to an article of the contract, use the number of the article you are referring to (“paragraph 1” or “article y”).
d) Check the progressive numbering of the articles.
e) When you foresee an obligation, remember to regulate the case in which this is not fulfilled or is fulfilled late or without respecting the agreements, inserting a penalty or the termination of the contract.
f) If you must receive a certain performance by a date that is essential for you, provide for termination with a penalty in the event that the performance is not performed.
g) When penalties are foreseen, be very careful: are you sure you can pay them or can collect them? If you are not, envisage other forms of sanction.
h) Provide for the possibility of requesting guarantees in the event that events occur that could jeopardize the solvency or the fulfillment of the obligations of the other contracting party.
I) In the case of contracts that have a long duration, foresee that at certain deadlines there is a verification of the services performed.
l) Be very careful to choose the Competent Court.
m) You can foresee the fact that the resolution of disputes is decided by an Arbitrator or by a Board of Arbitrators: it has the advantage of closing in a very short time but it is more expensive.
n) Remember that for the resolution of disputes in many matters (real rights, division, succession, family agreements, lease, loan, company lease, compensation for medical liability, defamation, insurance, banking and financial contracts, condominium, damage from circulation of vehicles and boats) Mediation is mandatory. Even in matters where the mediation procedure is not mandatory, it can be foreseen: it is cheap and effective.
o) Carefully check whether the person signing the contract has the power to do so: have the documents certifying the powers conferred (minutes of the board of directors, minutes of meetings, statutes, powers of attorney, etc.). Often a simple updated Chamber of Commerce registration is sufficient.