Contract: An agreement between two or more parties that establishes the rights and obligations of the parties that are enforceable at law.
Contracts are a vital tool in creating, building, and maintaining relationships, closing deals and transactions, and establishing the terms and conditions that govern these relationships.
A contract is important because…
It serves as a reliable record of the rights, responsibilities and obligations agreed to between the parties to the agreement.
A contract will outline the obligations of each party, how the obligations should be performed, the performance metrics for the obligations, and the timeline for completion.
It establishes legal enforceability.
A contract enables the parties to take legal action by outlining the process for pursuing legal action, such as the jurisdiction and governing law.
It creates a formal and binding relationship between the parties to the agreement.
A contract will outline the relationship created between the parties, the rights and obligations of the parties in the relationship, how the relationship will be maintained, length of time relationship will exist, and the financial and monetary obligations of the parties to one another.
It establishes payment, compensation and remuneration.
A contract will outline the cost/fees/rates relating to delivery of services or products, invoicing terms, the method of payment, the process for overdue/late payments, and any renewal terms.
It establishes confidentiality.
A contract will outline what information is and is not confidential, the terms surrounding the use and disclosure of the confidential information, and the ramifications of prohibited disclosure.
It mitigates disputes between the parties and provides a roadmap for when disputes arise.
A contract will outline the process by which to handle a dispute if a dispute arises.
It allows for negotiation throughout the process, providing opportunities for both sides to introduce terms and conditions that favour their position and/or increase the opportunities value.
It facilitates formal collaboration between the parties.
Whenever you are working with another individual, company or organization with high stakes, risks and rewards, you should give serious consideration to entering into a contract.
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