14 Sep From Mystery to Mastery: Crafting Standard Contract Language for Your Business
Kieran B. WheelerShareholder
A standard customer contract is an important tool for businesses to have. The contract language sets the baseline for all customer interactions and defines the expectations for the relationship between the provider of the services or products and the consumer. Some companies are hesitant to put a formal contract in place and rely on handshake deals or purchase orders with a few additional terms. The rationale we have heard several times is that customers will be intimidated or put off by a formal contract or lengthy terms and conditions. Although this is the reality for some industries, consumers and businesses are faced with an increasing number of contracts, from click-to-accept agreements for software products, to lengthy fine print on store receipts.
Using a limited approach to a customer contract can be harmful in the long run, by allowing unclear terms or unanticipated issues to become opportunities for disagreements between a business and its customers. A good contract is the backbone of each business relationship and allows the opportunity to address common issues in advance. It is like the phrase “Good fences make good neighbors”: a fence allows both neighbors to utilize their space without needing to constantly determine the boundary. Similarly, a contract allows each side to know exactly what they will be getting from a deal and what they will be putting in, without needing to constantly re-evaluate the scope of the relationship.
In this article, you will find some common provisions for your customer contracts to better establish the relationship between the business and the customer. Rapp & Krock, PC has reviewed and prepared countless customer contracts, and we are ready to assist you in preparing a new standard contract or modernizing and updating an existing standard form.
1. Client Identification
A common mistake is not precisely identifying the customer in the contract. You will want to use the official, legal name of the customer, not just a nickname or brand name, to avoid any miscommunications down the line. It’s like putting a clear label on the business relationship, making sure you know who to speak to if something goes wrong. Avoid relying on a trade name that is shared by multiple businesses; any confusion regarding the customer identity will take time to resolve and may affect your ability to enforce the contract. Issues with customer identification can also hinder or prevent collection efforts, should the customer fall behind in payments.
Finally, as part of the contract, ensure that you know the name and title of the person signing the contract, and specify it in the contract. A contract that is signed by someone without the power to bind the company is not an enforceable contract.
The price and payment terms for your standard contract should be easy to understand and easy to follow. An agreed pricing structure leaves little room for doubt or dispute. All conditions to payment – such as accomplishment of milestones, qualification or inspection of products, or the like – should also be easy to understand.
At the most fundamental level, a customer contract should establish (i) who is responsible for payment, (ii) what kind of payments are acceptable, (iii) when payments must be made, (iv) the amount of all required payments, (v) what happens if a payment is late, and (vi) how are disagreements over charges or payments resolved. A number of industries commonly use change orders, or similar amendment mechanisms, which then affect the ultimate price of a customer transaction. If this type of price modification is part of your standard client process, then the contract should be clear as to how those modifications are calculated or applied.
3. Standards of Performance
A standard contract needs to be clear in specifying all requirements for the work or products that will be delivered. This includes any particular aspects of quality, scope of work, or timeliness that may be important. To the extent possible, the manner and place of performance, including delivery locations, should be included in the contract language to mitigate potential disputes and misunderstandings that may arise.
If any particular measurements or standards must be met, then those should be clearly referenced, in a way that eliminates any ambiguity. Phrases like “best practices” or “highest professional standards” are not ultimately useful – instead, list the exact standards that must be met. Some industries keep their standards the same, while other industries are continually improving their standards with advancements in knowledge and technology. By referencing a particular standard or measurement, a business can insulate itself from having to absorb the cost of those changes. Further, a client may request to deviate from a particular standard practice or procedure (such as by using a non-standard measurement value). It is doubly important to memorialize such a change, rather than leaving it to the memory of the parties involved.
4. Customer Information and Expectations
In a perfect world, the parties to a contract will be deliberate and thoughtful in preparing the document. However, parties frequently make assumptions about each other and the deliverables, and even sign complicated contracts without verifying those assumptions. A standard form contract should spell out all of the information that the client and the business are bringing to the table and all assumptions that are part of the deal. This level of specificity allows each party to challenge or push back on assumptions that they may not agree with. It also preserves those expectations for the future, avoiding any disputes about what each party understood at the time the contract was signed.
Additionally, there are often situations where a customer needs to provide additional input after the contract is signed. This could be anything from delivering a copy of a third-party report, making finish selections in a construction build-out, or providing detailed financial information. If this is part of your standard customer engagement process, then all aspects of the customer’s involvement should be incorporated into the contract, including (i) when decisions and information are due from the client, (ii) the scope of what the client needs to provide, and (iii) what happens if client input is late or missing.
In conclusion, constructing a standard contract for your business requires documentation of your existing procedures and requirements for delivering products and services. For a deeper dive and a tailored approach to your contract drafting needs, the transactional lawyers of Rapp & Krock, PC are ready to assist you. Let us help you navigate the complexities of contract drafting with confidence.
ABOUT THE AUTHOR: Kieran B. Wheeler is a shareholder at Rapp & Krock, PC in the Business Transactions group advising clients on corporate governance matters as well as mergers and acquisitions and other business transactions.
Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.
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