Contracts Management

A contract forms the heart and soul of a transaction mutual agreement between two or more parties. Anything that goes wrong with the contract can lead to problems in future for both the parties. These problems would require the intervention of courts of law to settle the dispute which is a time and money consuming process. Therefore, it is essential that both parties are clear about why they want to enter into a contract. It is also important that the contract process should be simple, clear and easy to understand.

Understanding Contracts

What is a contract? A contract is a mutual agreement that takes places between two or more parties in order to effect a specific performance that is legally valid. This means that two parties cannot contract for illegal activities such as drug trafficking, smuggling and so on. The purpose of the contract itself should be legitimate in order to uphold its enforcement before a court of law.

Types of contracts- Contract can be broadly classified as oral, written, explained and understood or communicated. Asking for a chocolate from the shopkeeper is an oral contract, whereas signing a bond by an employee for the company is a written contract. Contracts cannot be charity based. There must be scope for mutual benefits. One comes into a contract only if all the terms and conditions are beneficial for both parties.

Understanding The Contract Process

Here is how the contract process begins:

Offer and Acceptance An offer is a proposal given by the offeror to the offeree with certain terms and conditions mentioned prior to the agreement. This takes place in the contracts review process. Once the offeree accepts the offer, the parties discuss the terms and finalize it by signing the contract. No further negotiations can be done after this stage of finalizing the agreement. The offer becomes a contract when the acceptance is sent to the offeror by the offeree.

Consideration It is very important to have three elements in a contract: namely:

1. Mutual benefit 2. Mutual consent. 3. Mutual consideration.

Objectives Before making a contract, all aspects should be taken into consideration such as the financial, legal, social and domestic aspects of the contract. The contract should clearly mention the objectives to the offeree.

Legal formalities and writings It is always advisable to have a contract in a written form. This helps to recall the terms and the conditions laid down in the contract approval prcoess and also acts as a legal proof for enforcement of the contract.

Contents of the contract should include the following: 1. Date of execution 2. Competence and age 3. Duties and responsibilities 4. Performances/reasons for delays 5. Method of payments 6. Provisions for cancellation of contract.

Disclosures The offeror should mention all the details which he wants his customer to know before entering into a contract. What is written in a contract subsequently becomes a guideline for both the contractor and the contractee during the contracts management process.

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