Contract Basics 101

With the growing number of individuals working as independent contractors or freelancers, gaining a firm grasp of contract language is a good idea for everyone. Signing away your skills and services can be tricky, if you don't understand what you are signing or fail to read the entire contract. Each contract is different. Yet, there are similarities and terminology that usually appear in most contracts.

There should almost always be a clear-cut description of services. Regardless of whether you are providing the service or purchasing it, having an explicit description of what both parties understand the service(s) to be is important. This prevents any disappointments, misunderstandings, or confusion at the conclusion of the service. For example, if you sale your software to a company, are you responsible for training? If so, how long are supposed to train and is there a higher fee for training on-site versus training online? For complex o multiple services, many contracts detail this information in an additional attachment section. The services section is also where the purchaser and the contractor agree to what services will be provided and sometimes the actual costs. Also tasks that compliment services, such as training, reporting, monitoring, repair and maintenance, and consulting are often detailed in this section as well.

The warranty and liability section can be together or separated depending on the size of the contract. This section is where the contractor details under what circumstances they are responsible for the product or service in the event of risk. For example, if the product breaks because the purchaser is using it for unusual purposes, should the contractor be responsible? On the other hand, if the product breaks or malfunctions after day two, should the purchases be stuck? This sections spells out the terms that each party is willing to accept responsibility due to a risk, accident, or product default.

The Hold Harmless or Indemnification clause is a great section to follow the liability portion, because it protects from liability. If done correctly, it will protect both parties. However, generally only parties with legal knowledge, an attorney, or a risk management department will know to include such a clause. In laymen's terms, the indemnification means that you will not sue or blame the other party for any liability for which they were not totally negligent. Again, good clauses have parties indemnifying each other and practically cancel each other out. Just because proving total or gross negligence can be very difficult. You may also find additional language in this section for further protection if you are contracting with a municipality. Municipalities have "sovereign immunity," which awards them additional protection in lawsuits.

There are other common sections that contracts share; however, there is no need to make your head explode. These are generally the most important parts and should be in every contract, regardless of the service being provided. The important thing is to read the entire contract. And, remember despite how nice the other party may seem it is your responsibility to look out for your interests, no matter what side of the pen you are on.