How To Read A Contract

In most companies you will find that nobody but upper management is allowed to sign a contract. We think that attitude is self defeating. Reading a contract is a skill that needs to be taught, learned and practiced or when it comes time to do it for real, you’ll be at a complete disadvantage. Our goal is to make you better at your job, able to turn project quotes around faster, and have some authority for self determination. It will make your jobs easier when you’ve earned the authority to sign your own contracts. The autonomy should feel good too.

Attached here are two contracts which are well written. Please download them, print them and read them for meaning. [Contract 1] [Contract 2]

Contract Law

It is the law in the United States that if a vendor reasonably infers you have the authority to sign a contract, then you can commit the company to have to perform, even if our policies don’t afford you the authority to do so.

A3E Contract Philosophy

• As stated above, reading contracts is a skill that’s vital to the advancement of your careers. Everything we do is contract based and is a commitment to either DO something for someone or PAY someone for something they’ve done for us. The libertarian in me would philosophize; contracts are a sacred pact between two rational entities, enforced ultimately by the power of the state.
• Until instructed otherwise, senior staff would like you to read all contracts for the vendors on your projects and summarize the terms and conditions verbally.
• We’d like you to find something you don’t like about every contract. Even if the terms and conditions are fair and we’ll ultimately sign it the way it is there’s always a “worst part”. Find it and articulate it.
• If you sign a contract, you own responsibility for how it turns out.

How To Read A Contract

Project Narrative

The first advice we have is for you to “Read for Meaning” as my mother used to say. It means; ask yourself what every sentence and every paragraph means to you and to your company. The body of the contract should answer the questions:

• • Who
  • What
  • When
  • Where
  • Why
  • How
  • How Much

If it doesn’t explicitly cover these items, than it should implicitly cover them. If there’s any ambiguity you should push back until you see a contract that satisfies you. This is where it pays to be disagreeable (a little bit). By pressure testing a contract by making them write down things you’d like written down, you are finding out if you and the service provider are on the same page. Sometimes there are provisions you read that you can’t live with. Sometimes there are provisions NOT WRITTEN that if you new about it would make you not sign the contract. You should work to pressure test all assumptions and amend them into a contract.

Terms & Conditions

Risk Issues

• • What are the counterparty’s limitations to their liability?
  • Who’s responsible for what if the project goes sideways?
  • How do we exit the contract?
  • If we have to fight, where geographically do we fight?
  • Do we fight in front of judges or arbitrators?
  • What kind of warranty does the subcontractor offer?

Payment Concerns

• • When is payment due?
    • On delivery?
    • 30 Days?
    • Paid when paid?
  • What is the interest rate if payment is late?

Contracts You Cannot Sign

• • Master Service Agreements – Long running contracts between prime and subcontractors.
  • Contracts that span more than one project.
  • Contracts that don’t have anything to do with an active project you’re the project manager for.
  • Contracts with a value of more than $2500
  • Anything to do with banking.