A Northern Virginia Small Business Lawyer Explains What You Need to Know About Your Contracts

Whether you are providing a service to your clients and customers or contracting for services with a vendor, the contract is going to define the rights and obligations of the parties involved. Unfortunately, many business owners don’t see the shortcomings in the contracts they are signing until it is too late.

From startups to established business, it’s never too early to or too late to get a handle on your contracts. A Northern Virginia small business lawyer can review your contracts, identify potential issues, and revise your contracts to better protect your interests. 

Understand the Essential Parts of Your Contracts

Many of the form contracts I see are ambiguous when it comes to critical provisions of the contract. In some cases, important provisions are missing entirely. Knowing what to look for, what these provisions mean, and what they should say can help you get better contracts in place. Here is a breakdown of the key components that every small business owner should have in their service contracts: 

Identification of The Contracting Parties

It may seem obvious, but the first thing your contract should do is clearly identify who the parties to the contract are. Your contract should include the full legal names of your business and the client or customer, along with contact details. 

More importantly, the contract needs to identify who is contracting for the services. If you have been dealing with a customer’s managing agent, you need to make it clear that the contract is with the customer, and not the agent. 

• Example: Green Acres Landscaping, LLC is hired to provide landscaping services to Sunrise Valley Office Park, Inc, which is managed by Elite Commercial Property Managers, LLC. The contract is between Green Acres and Sunrise Valley, and Green Acres needs to ensure that Sunrise Valley is named as the customer, not Elite Commercial Property Managers, LLC. Elite can negotiate and even sign the contract, but you want to make sure that Elite is signing as the agent for Sunrise Valley and on their behalf.  Of course, the opposite would apply if the customer is Elite and not Sunrise Valley. 

Scope of Services

This is the heart of your contract. Outline exactly what you’re providing and be as specific as possible. If you’re a web designer, are you delivering a homepage plus five subpages, or just a landing page? Specify the deliverables, timelines, and any limitations. Vague terms like “marketing services” can lead to mismatched expectations, so spell it out: “Three social media posts per week for 30 days.” The more detailed your scope of services is, the less likely it is that disputes will arise. 

Payment Terms

Most small business owners get this part right - after all, the whole point of the contract is to exchange services for money, and it would be foolish to not be clear on this point. However, there are a few points that you should be clear on: 

• When payments are to be made

• What penalties apply (late fees, interest, and so on) and when they are applied in the event of late payment

• Accepted methods of payment - bank transfer, credit card, checks, and electronic payment options

• Any ancillary charges that will be applied and how they are calculated

I have seen many disputes arise over a large invoice, often because the contract wasn’t clear how the customer would be billed. And even though the amount of the invoice was valid, the business often lost the customer - an outcome that could have been avoided had the contract been more clear on how and what they will be billed for. 

Timeline and Deadlines

Set realistic deadlines for both your work and for the client’s responsibilities when applicable. For instance, “Construction will begin within 14 days of receiving client approval on the plans.” This helps both sides manage their expectations and sets “checkpoints” to keep projects moving.

Termination Clauses

A good termination clause is arguably one of the most important provisions in your contracts. This is your exit strategy in the event that the relationship turns sour. A good termination clause should address the following points: 

• Notice - the contract should state how one party must notify the other party of their intent to terminate the contract and how far in advance of the termination date they must provide that notice. 

• With or without cause - the contract should specify whether the parties must have a reason to terminate the contract or whether it can be terminated for no reason at all. Many contracts allow for both, but with different notice requirements. For example, the client may be able to terminate with cause upon 14 days’ written notice but can terminate without cause upon 60 days’ written notice. 

The termination clause should also identify what happens once one side has notified the other of their intent to terminate. For example: 

• Is the service provider expected to immediately halt services or are they expected to complete the work already in progress? 

• Is the client expected to pay the total amount of the contract or only for services provided as of the date of the termination notice? 

• What about materials and other costs incurred by the service provider? 

• Is there a termination fee? 

If you have questions about the termination provisions in your agreements, a Northern Virginia small business lawyer can provide you with valuable guidance. 

Liability, Insurance, and Indemnification 

This provision (or provisions) of your contract could be a separate article unto itself. Unfortunately, many small business owners fail to appreciate the importance of these clauses, probably because it often reads like indecipherable legal jargon. 

In a nutshell, these clauses outline who is responsible to the other in the event that someone suffers some type of harm. There is usually a provision that requires the parties to maintain insurance coverage and may include specific coverage amounts as well as an obligation to name the other party as an additional insured. There is often an indemnification provision that obligates one party to “indemnify” the other in the event that they get sued as a result of their actions. It will often set for a standard that triggers the indemnification standards - negligence versus gross negligence, for example. 

For many small businesses, this is probably the most complicated aspect of your contract. Before you wade into the language of the provision, it may be helpful to first give some consideration to the following: 

• What reasonably foreseeable risks do you face with respect to the contract and your everyday business operations? 

• What risks does the client face? 

• What risks can be eliminated versus what risks need to be managed? 

• Can your risks be adequately managed through other contract rights such as the ability to terminate the contract without cause? 

Indemnification clauses often raise a variety of questions that may not have clear answers. A Northern Virginia small business lawyer can help you navigate this issue so that your contracts provide the protection you need. 

Disputes and Default

Sooner or later, you will wind up in a contract dispute. When that happens, you need your contract to clearly identify your rights and remedies for enforcing the contract. For example: 

• Right to cure clauses - these are clauses that give the party in breach of the contract the right to resolve the breach within a certain period of time. 

• Selection of remedies - these clauses may prohibit you from pursuing arbitration or mediation or it may limit you to only those options. 

• Venue selection - these provisions determine where disputes may be heard. You may be obligated to file suit in a specific state or county.

• Choice of law - some contracts will dictate that the contract be governed by a particular state’s laws. 

• Attorney’s fees and costs of enforcement - these provisions allow the party enforcing the contract to recover their attorney’s fees and costs in doing so. 

Your contract may not include all of these clauses. It may not always make sense to give the parties the right to cure a possible breach. In addition, the relationship between these clauses can be complicated. You could have a contract that specifies any Virginia circuit court as the proper venue for filing a lawsuit, but requires that the contract be governed by North Carolina law. 

Merger

A merger clause is a contract provision that basically says, “this contract is the entire agreement and overrides any other verbal or written agreements.” It might also state that any changes to the contract must be reduced to writing and signed by all parties to the contract. It may not look like much, but merger clauses are very important - they ensure that the contract will be the controlling document in the event there is a dispute. 

Contract Tips for Small Business Owners

Most small business owners think their contracts are perfectly adequate until they find out that they aren’t. While it’s impossible to anticipate every possible issue or dispute, here are some ways to minimize potential issues with your contracts: 

• Form contracts are a one-size-fits-all solution. Without a doubt, form contracts are an inexpensive way to get a contract in place. Just keep in mind that the contract is not tailored to your business or your state’s laws. Furthermore, there may be provisions in the contract that can become problematic in the event of a dispute. 

• Form contracts can be modified. You can add whatever provisions you like. If the form itself is difficult to modify, you can create an addendum that clarifies certain provisions. Just make sure that it is signed by all parties and that it doesn’t create additional ambiguities or conflicts. 

• Contracts are negotiable. If you are presented with a contract that you don’t like, ask the other party if they would let you make revisions. If the answer is “no,” then you need to assess your potential risks or look for another service provider. 

• Keep it simple. Use plain language. I’ve seen many contracts where the parties attempted to write like lawyers and only made the issue more confusing. 

• Regularly review your contracts. As your business evolves, so should your contracts. Schedule an annual review of the contracts you use to make sure they are providing the protection you need. 

• Seek legal advice. An experienced attorney can review your contracts, suggest changes, and even negotiate a fair agreement with your customers or vendors.

Talk to a Northern Virginia Small Business Lawyer Today 

Your contracts aren’t just paperwork - they are important documents that keep your business running smoothly. An experienced attorney can review and edit your existing contracts, negotiate new contracts, and deal with any disputes that may arise. To discuss your needs and how we can help, contact us today by phone or email.