How to Write an Agreement

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Written agreements are legal and binding documents that define the obligations of all parties involved, whether it be for a project, good or service. As such, they provide an indisputable record of the agreed upon terms. The law gives great weight to an agreement should disagreements arise later. A written agreement can protect your interests. There are many types of business agreements, but these are the fundamental items to consider when writing any agreement.

Basic Elements of Written Agreements

Define the scope of work. Determine what is to be done and what parties are involved. Decide which party will be responsible for the scope of work (or a part of it). Include which party will determine whether the scope of work has been completed satisfactorily.

Establish the duration of the agreement and any deadlines associated with it. Select key deadlines such as when the agreement itself is to end, when the work is to be done or the good provided, and payment deadlines. Decide whether interim deadlines are appropriate, and determine whether they are strict deadlines or flexible.

Determine the money involved. Include the cost, and whether the price is fixed or variable (this may be determined by whether it is a good or service that is being agreed upon). Detail the financial controls if the price is variable: the maximum amount, any sort of approval for large or unanticipated expenses, and if and when receipts are required. Determine if any funds will be advanced in the course of the transaction and whether penalties will be imposed for lateness or nonperformance. Include whether there are exceptions to any of the financial stipulations.

Establish any record keeping or reporting procedures. Determine who or what party is responsible for record keeping and reporting, where required, and whether such records and reports will include financial information. Establish how long the records are to be kept and to what degree they will be protected if confidential or sensitive.

Define the protections for liability. Determine who is to carry liability insurance or provide workers compensation. Specify whether insurance certificates will be required. Decide whether to include an indemnification clause for one party or both (mutual indemnification): this is a part of an agreement that provides for one party to bear the financial costs (directly or by reimbursement) for losses incurred by the other party.

Classify the terms of dispute resolution. Decide what should occur if a disagreement results and one party seeks to pursue legal remedy. Identify which state's law will govern, if applicable, and where a lawsuit can be filed. Choose whether the disputing parties to the agreement must submit their legal claim to mediation or arbitration first. include whether the losing party will have to pay for any attorney fees.

Tips & Warnings

  • Clarity is paramount in agreements. Clearly express all of you contractual obligations. Such clarity will provide better certainty to those parties involved, which reduces the risk of disputes and litigation.
  • Make all parties involved sign the agreement and include a witness for each party. Signatures and witnesses provide extra protection, especially when the agreement has to be amended or enforced.
  • Legal review is highly recommended when writing an agreement. Attorneys can be expense, but paralegals can be just as helpful. Paralegals can provide guidance when drafting the agreement and are usually familiar with the different components that bring an agreement together.
  • Avoid using terms such as "materially," "reasonable," "good faith," "best efforts," and "related." These terms can be problematic in an agreement as they lead to ambiguity. All agreement provisions, terms and deadlines should be clearly defined.
  • Do not include provisions that appear inequitable or unfair, even if they are legal.

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