Contracts

When you make an agreement with another business, all the details should be written down and signed by both businesses. The written document is called a contract. 

You shouldn't make an agreement where everything  is just talked about and nothing is written, even if it's with someone you know well.  This is sometimes called a "handshake agreement" because it's only based on what people say.  When you only talk about the arrangement, it's easy to misunderstand or forget details. The more important the agreement, the more important it is to have it in writing so there are no misunderstandings.   Otherwise, one side ("party," as the businesses are often called) might feel misled or let down. 

There are different types of agreements, some more important than others. The name of agreement can  often tell you how important it is. Agreements that parents sign to enroll their children in your care might be called Care Contracts. When you work with other groups, you may receive a Memorandum of Understanding, or MOU, which is usually a lower-risk agreement . Often, groups agree to work together for a common goal without exchanging money sign a MOU. You might sign a MOU if you agree to work with a local Early Head Start agency to comply with EHS program standards. 

Get it in writing

Whenever you enter an agreement with another group,  here are key things you want to make sure are in the document you both sign:  

• Business name (If a business uses a Doing Business As or “DBA” name, also include the registered business name)
• Business address (Include best mailing address if different than registered business address)
• The contact person(s) for each business, along with their phone number and email address
• Start and end date: Agreements should have a start and end date or a job completion date. For small jobs, it's okay if the agreement does not specify dates as long as payment isn't due until the job is done.
• Terms of payment. Will payment be exchanged? If so, how much? What form of payment is accepted? When is the payment due? What is the penalty for late payments? 

If you're paying another business to do something for you, you'll expect quality work. If the job isn't completed the way you thought it would be, you have a right to dispute the work if you put your expectations in writing in a signed contract signed. Today, digital signatures are as valid as print copies with handwritten signatures. 

If you're unsure about something or do not have time to read the documents you are signing, ask a trusted source. 

Assess the level of risk 

More complicated agreements need longer contracts. The more legally bound your business is to another entity, the more risk your business could be taking on. It's a good idea to have a lawyer look at higher-risk contracts before you sign them. Be aware of all your obligations and what services or goods you're supposed to get before signing. Keep in mind that even short contracts can be legally binding. 

Also, keep in mind that "lower risk" doesn't mean "less work." Always read everything you sign word for word. If you don’t understand something, ask the person who prepared the document to explain it to you. If you have concerns about something you're asked to do, voice them. You might be able to get the contract changed to fit your needs, or you might understand things better by talking about it. 

As contracts increase in levels of commitment and risk, there are more things to think about. Here are some signs that contracts might have a significant level of risk:  

A large sum of money is being exchanged, and/or a significant sum is being exchanged as a recurring amount.  Your business needs to make money to stay healthy and successful.   If you're paying someone else to do a job for you, have you researched if they are reputable? Look at online reviews and ask for past clients you can call.  Will you be able to check regularly (ideally monthly) that they're doing the job you're paying them for and that their work meets your standards? It's best if you state what happens if they don’t do the job or if the work isn't good enough in the contract. 

Certain binding clauses are included.  Near the end of the agreement, it's common for medium- to high-risk contracts to have legal phrases that are meant to lower risk.  Think about whether you trust the group you're making an agreement with enough to take on their risk. Also, make sure the contract protects you equally.  Binding clauses don't mean you shouldn't sign the contract—it just means the contract has some risk. If you're not sure of what something in the contract means, ask people you trust in your business or life to look at it. If you're unsure about the meaning, you might want to talk to a lawyer to make sure signing the contract is a good idea for you. 

 People who aren’t part of your business are coming to your business or you/r business is going on site to theirs. Whenever you' re at someone else’s location, they might be responsible if you get hurt unless you agree to something different in writing. That's why you have liability insurance. If a child gets hurt in your home and a family thinks you're responsible, your insurance should protect you from having to pay for medical or legal costs. Some contracts ask for proof of liability insurance or might ask you to add another business as an extra insured party on your liability insurance (or the other way around).  

More commonly, contracts will have Hold Harmless clauses. These usually say that you can't hold the other group responsible for something bad that happens while you're in the agreement with them. Hold Harmless statements are usually good for both parties as long as both sides present a similar degree of risk. In general, Hold Harmless clauses are good to incorporate into community partnership or shared services contracts. 

One situation where different degrees of risk are present are when you hire a contractor to do repairs or landscaping. These contractors pose significantly more risk for your property and your business than you do for them. Contractors should have a liability insurance policy to protect themselves from adverse situations, just like you have a liability insurance policy for your business. Only work with contractors who have liability insurance and who will do the job for you without a hold harmless clause. 

Disclaimer 

The information contained here is for educational purposes only and is not intended to constitute legal, tax, or financial advice.