Hallmarks of a Good Contract
What constitutes a good deal is specific to your industry and the market conditions at the time. What constitutes a good contract, however, is universal.
A good contract must balance clarity and flexibility — providing unambiguous solutions for common issues that arise and workable guidelines for contending with unanticipated problems. Boilerplate contracts simply do not provide these benefits. That is why companies should always consider drafting special contracts for every large or otherwise important project, purchase or transaction.
A good contract is tailored for the transaction it is intended to govern. But there are certain elements that contract drafters should consider in nearly every type of document:
- Defining rights and duties — This is usually the most fundamental aspect of the contract. It means more than simply how many and how much. A contract provides timetables for performance and defines what type of breach would be considered fundamental.
- Dealing with breaches — There are several methods for avoiding the possibility of protracted litigation if a contract is breached. Remedies for breach can be defined in the contract, including liquidated damages provisions, in some cases. Parties can also agree to submit disputes to arbitration, mediation or other forms of alternative dispute resolution as well as procedures and methods for doing so.
- Allocating risk — Risk is an essential part of nearly every business transaction. Many contractual disputes arise from parties arguing over who bears the risk of loss after something has gone wrong. By clearly allocating risk in the contract, the parties can avoid this type of dispute and can put the responsible party on notice to take appropriate protective measures, including the procurement of insurance.