How to Do a Contract: Steps for Drafting Agreements

Key Takeaways

• Contracts can be written or verbal, but written agreements are easier to enforce and provide clearer protection.
• When learning how to do a contract, include essential terms like scope of work, payment, timelines, risk allocation, and dispute resolution.
• Effective contracts require plain language, precise definitions, and clear identification of parties and obligations.
• Steps in drafting a contract include gathering information, outlining terms, negotiating, writing, reviewing, and finalizing with signatures.
• Strong contracts help manage risk by addressing delays, insurance, and remedies for breach in advance.

Are you wondering how to start a contract? It begins with an agreement between parties that want to work together. A contract can be written or verbal and is used to establish a well-defined agreement between a company and their client, it is legally binding. A work contract reduces risks for all involved parties by establishing the details and terms of the agreement including:

• Details of the project to be completed.
• All pricing and payment terms.
• Estimated time requirements of the project.

A contract is also used to deal with risks, including:

• Delays that are outside the control of the parties.
• Which party is responsible for purchasing insurance.
• How to handle if liens by subcontractors or suppliers are recorded.

Establishing these parameters should always be set before any work begins when parties are working together to reach an agreement. If issues appear after the work has begun, the parties will be less likely to work together to find a resolution. Also, any work should not begin until a contract has been fully agreed to, signed and dated by the parties involved.

Written and Verbal Contracts

A written contract reduces the risk of misunderstanding between the parties. Many businesses do not like the costs associated with having a contract drafted by a legal professional, but it reduces the cost of disputes that may arise in the future if a contract is not put in place. Refer to the state laws pertaining to the statute of frauds to determine if a contract must be in writing such as loans, credit cards, and real estate contracts like mortgages.

A contract is not always required to be in writing to be legally binding. A verbal contract is binding and seen as complete when the terms and conditions have been met and agreed to. If all of the terms and conditions are not fully agreed to it is seen as incomplete. A way to protect yourself in a verbal contract is to send an email that details the terms and conditions and request that the other party responds with an affirmative answer to the email. This will help deal with any disputes.

A breach of contract can be taken to court, but in the case of verbal contracts they are harder to enforce legally. Additional documentation should be produced to enforce the terms agreed to verbally. In some cases, this documentation may include email correspondence between the parties, phone calls or documented meetings. If the email shows a clear offer, with terms and conditions that are accepted by the other party, it can be considered a legal, valid contract. To avoid the additional stress of proving a verbal contract, written contracts are recommended to protect yourself and any assets that will be used in the project.

Whether written or verbal, consumer law may be used to help solve the dispute. In the case of goods being sold, the law will favor the buyer if goods are not delivered. Consumer laws also protect those who provide services as well.

Essential Elements of a Contract

Every enforceable contract shares a few core elements that establish its validity. When considering how to do a contract, be sure your agreement includes:

• Offer and acceptance – One party proposes terms, and the other accepts them.
• Consideration – Something of value must be exchanged (money, services, goods).
• Capacity – Parties must have the legal ability to enter into a contract.
• Legality – The agreement must relate to lawful activities.
• Mutual consent – Both parties must freely agree to the terms without duress.

Clearly identifying these elements in writing reduces disputes and ensures courts will recognize the contract if enforcement is needed.

Drafting and Finalizing Contracts

If your business is going to utilize written agreements, it is recommended to use professional legal counsel who is knowledgeable in business, commercial, or the law related to your industry. By using a skilled professional, you limit the possibility of contracts that are poorly written or have unintentional loopholes.

Before any work begins, contracts should also be signed by all parties. In some cases, electronic signatures may be used. In some jurisdictions contracts may not use electronic signatures, including divorces, wills, and evictions. Some parties may prefer to have witnesses or a notary present as extra protection to show all parties understand and agree to the terms and conditions of the contract. Copies of the signed contracts should be given to all parties. With the increase in cloud computing, it has also become much harder to lose or damage these contracts.

In some situations, businesses will expect partial payment before they begin any work or the delivery of any goods to eliminate the issue of nonpayment. By doing so, it is easier to spot companies who never intended to pay.

Common Mistakes to Avoid in Contracts

Even experienced professionals sometimes make errors in drafting. When considering how to do a contract, avoid these pitfalls:

• Vague terms – Phrases like “reasonable time” or “as needed” invite disputes.
• Missing signatures – An unsigned contract may be unenforceable.
• Failure to address contingencies – Leave no uncertainty about delays, substitutions, or force majeure.
• Overuse of legal jargon – Dense language can confuse parties and make enforcement harder.
• Not updating contracts – Relying on outdated templates may create loopholes.

By spotting and avoiding these issues early, you strengthen your agreements and reduce the chance of litigation.

Step-by-Step Process for Drafting a Contract

Learning how to do a contract involves moving systematically through a drafting process. Following structured steps ensures no essential terms are left out:

1. Identify the parties – Use full legal names and business entities to avoid ambiguity.
2. Define scope and obligations – Specify services, deliverables, and performance standards.
3. Include payment terms – Detail amounts, due dates, late fees, and acceptable payment methods.
4. Set timelines – Establish start dates, milestones, and completion deadlines.
5. Add risk and liability clauses – Cover insurance, indemnity, and limitation of liability.
6. Outline dispute resolution – Decide whether mediation, arbitration, or litigation will be used.
7. Use plain language – Avoid jargon and overly complex terms that cause confusion.
8. Review and revise – Have both parties (and ideally a lawyer) carefully review before signing.

This process helps create clear, enforceable agreements that protect everyone’s interests.

Frequently Asked Questions

1. What is the simplest way to do a contract?
   Start by identifying the parties, defining obligations, setting payment terms, and putting the agreement in writing with signatures.
2. Can a contract be legally binding without writing?
   Yes, verbal contracts can be binding, but written agreements are much easier to enforce and provide clear proof of terms.
3. What clauses should every contract include?
   At minimum: scope of work, payment, timelines, risk allocation, and dispute resolution mechanisms.
4. How can I make sure my contract is legally enforceable?
   Ensure it includes offer, acceptance, consideration, capacity, and legality. Having it reviewed by a lawyer adds protection.
5. What happens if a contract is poorly written?
   Ambiguities or missing terms may lead to disputes, unenforceable obligations, or costly litigation. Using clear language reduces risks.

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