The basic definition of a contract is “a legally binding agreement between two parties.” (Lawyers say parties instead of people because one of the parties could be a company, or some other entity like a trust.) That sounds like it could be painful, but in this blog, we are going to look at how to cover all the essential elements of a contract in the everyday language you use for your marketing. I promise you won’t need a textbook so heavy you could use it as a deadly weapon.
What does a contract do for me?
The main reason my clients tell me they want a contract is for protection. They want to keep themselves safe – and because they are wonderful people, they want to keep their clients safe too.
When we think about the protective function of a contract, we tend to think in terms of not getting sued. Going to court is expensive, stressful and scary. No wonder you want to do everything you can to avoid it. Can you feel your gut twisting and a vice grip of fear tightening across your temples? Take a deep breath and let it go. It may surprise you, but the risk of one of your beloved clients taking legal action against you is actually very low. You provide a quality service, you’re committed to best practice, your clients adore you. You are safe.
So why bother with a contract?
The main function of a contract is not to stop people ripping you off, trampling all over your boundaries, and taking you to the cleaners if you should happen to make a mistake. Yes, it can do all of those things, but that is not the real reason you need it. The real reason you need a contract is to avoid misunderstandings.
It is a fact of life that two people can have a conversation and walk away with each having a different understanding of what was agreed to. This is partly because people can interpret the same information in different ways, and partly because such conversations tend to focus only on the most important issues, leaving lots of gaps in the detail that people fill in with assumptions based on their beliefs about a situation. Confirmation bias means that when we look back on the conversation, our recollection of what we saw and heard will reflect our hopes and expectations, which could be quite different to the other persons, even if we were both acting in good faith.
When you take the time to prepare a written agreement, you make sure to include all the details that are important to both of you. You clearly set out your mutual rights and obligations – what they can expect to get from you, and what you expect from them. You make sure you both understand where your responsibility ends, and theirs begins. You set boundaries around how you will each treat each other. You think about what could go wrong, and you make choices about how you will respond in those situations, and you put a process in place for working things out if something unforeseen happens.
Won’t a contract scare my clients away?
That actually depends on how you feel about your contract, rather than the contract itself.
If you truly believe that having a clear agreement in writing is for your mutual benefit, that it protects and supports your clients as much as it protects and supports you, then it will increase your confidence and positivity in making the sale.
If you see it as a barrier – a barbed wire fence – that your clients have to fight their way through in order to get to you, then it is quite likely that clients are going to find it to be a stumbling block.
Here is what I always tell my clients:
“A good contract is a caring container, holding the sacred space where your business relationships can bloom.”
Your contract is there to increase trust between you, to bring you closer, not shut you up in an ivory tower where your clients can’t reach you.
Your contract is there to welcome new people into working with you, to educate them about everything they need to know, to answer their questions, reduce anxiety and avoid them getting confused.
Your contract is there to reassure both of you that you share a mutual commitment to working together and explain in detail what that means for each of you.
If your contract does not feel like that, if you feel worried and apologetic when you send it out, then your contract is not serving you and it needs tweaking. You don’t need to stay stuck with a contract that is causing you to feel uncomfortable, as this will lead to self-sabotage. Do yourself and your clients a favour and give it a tune up, so you can share it with them happily, knowing it is for their good as well as yours.
Delight in the details
There are some things that need to be in a contract to make it legally valid. Let’s look at them more closely:
- The parties. As we saw above, the parties are the people who are agreeing to make a series of promises to each other. It is your contract, so you need to be clearly identified. Best practice requires a business name, a contact name (unless you are a sole trader, when both business and contact name are usually the same), contact details and (if you are Australian) your ABN. Your client also needs to be identified, but how this is done will vary depending on the purpose of the contract. It is also important to ensure that both of you have the legal capacity to enter into a contract. This means you are both over 18, you are both mentally capable, and neither of you is being forced or tricked to enter into a situation that they don’t understand or agree with.
- Your intentions. A contract will only be legally binding if the parties intend for it to be so. I discussed have the situations when this might not be the case in an earlier blog: Contracts between Friends and Family < https://www.michellewhitehead.com.au/contracts-between-friends-and-family/> . In a commercial situation (where you are running a business and the other person wants to purchase something from you or work with you, this intention is usually presumed. In a contract that cares, you will go further, writing down what your intention is for the relationship that you are entering into. A contract that cares understands that an agreement is being formed on an energetic, personal level, as well as a public, legal one.
- The agreement. Legally speaking, an agreement has three components. There needs to be an offer. This is what you are agreeing to do for the other person – the product or service that you have offered for them to purchase. There needs to be an acceptance. This can be signalled explicitly – by signing the contract – or implicitly – by an action consistent with accepting the offer, such as making a payment, booking an appointment, or ticking a checkbox that says “I have read and agree to the terms and conditions”. Finally, there needs to valuable consideration. This is because the law won’t intervene to enforce a gift. If you are just giving your service to someone out of the goodness of your heart, there is no contract. They need to pay you for it in some way. What counts as valuable depends on the circumstances. It can be money (any amount of money, even a tiny amount can be sufficient) or an exchange of services, or a promise that they will do, or not do something. In a business contract, though, consideration usually means payment. This is why it is SO important to be clear about the money! When you are making a sale, you are talking all about the big picture – their problem and how you can solve it. The money may only be mentioned as an afterthought – but it is here that things most often go wrong. Think about the who, what, when, where and how of your client journey, and give them all the information they need, so they know exactly what to pay and when, and what they are getting in return for their money – and especially don’t forget those extremely important details about your refund and cancellation policy. It may seem like you are inviting trouble to put those policies in, but I can promise you, letting your clients know that you have clear, caring policies, aligned with your values and vision for your business, is a much better basis for building solid client relationships than reacting in a panic when a client says they are unhappy. (It is also a requirement of Australian Consumer law that you make your refund policy easily available for your client to find.)
There you have it. That is all most business agreements need to be legally binding. Of course, there are a whole lot of other details that are important to you both that should be included in a contract that cares.
Protection goes both ways
Now we know what must be in a contract, let’s look at a few of the other elements you might want to have in your contract that cares. For each of these elements, it is important to consider how you can make them fair and balanced. A contract that cares tries to be even-handed for the good of all.
- Disclaimers – this is where you give your client a loving reality check, warning them of any potential risks and ensuring they know that they have the responsibility to making informed decisions and take sensible precautions to care for their own safety while working with you.
- Intellectual Property – this is where you make sure your client knows what they are and are not allowed to do with the materials and methods you have created to share with them. A common approach is to specify that they are fully authorised to use the material for their own personal use – or for the purpose that you provided it for – but they can’t pretend it is their own or provide it to anyone else.
- Confidentiality – this is where you promise your client that it is safe for them to share private, personal or sensitive information with you, by telling them how you will store that information, who will have access to it, and under what circumstances (if any) you will release it to someone else.
- Consumer Guarantees – this is where you make your commitment to your client that if there is a problem that is your fault or that means they are not getting the benefit they bargained for and had a reasonable right to expect, you will work with them to fix the issue.
- Dispute Resolution – this is where you set out a process for dealing with complaints and problems. A robust dispute resolution policy will start with them notifying you in writing of what has gone wrong from their perspective, and you negotiating with them in good faith to find a win/win solution. If you are unable to resolve the issue within a certain time frame, you both agree to seek the assistance of a neutral third party to mediate between you, and to share the costs of mediation between you. Litigation is reserved as a last resort, and available only when it becomes obvious that you cannot reach an acceptable compromise about the issue (which is very rare.) It is also a good idea to include a mutual non-disparagement clause here, so that you each agree you will not publicly bad-mouth each other while you are working through a problem.
Room for Negotiation & Evolution
A contract that cares is not set in stone.
At the very start of your contract (and in any cover email you send out with it) you should include a friendly invitation for your client to ask questions about anything that is unclear and to negotiate any elements that they feel are not in alignment with their expectations. This ensures that the contract is open, honest and two-way, since the client has an opportunity to request clarification and changes. It totally removes that icky “like-it-or-lump-it” vibe you get with many large service providers (telephone and electricity providers are among the worst).
Secondly, be prepared for your contract to evolve as your business does. Make a commitment to yourself to check in with it every 3-6 months – read it through, see if you still love it, see what has changed in your business that needs updating, see which policies you are actually not following through on and bring them into alignment. A contract that cares is a living document that comes from the heart of your business – and since you have complete ownership of it and understand every word it contains, it is easy for you to make sure it stays current and grows with your business.
How I can help
You can use my DIY Legal Packs to create your very own Contracts that Care, or – if you have created a contract in the past but you are not quite happy with how it is serving you, join me for an Advice on a Contract session and let’s get you loving your legals!