As a business owner, you will have contracts with several parties. These include employees, contractors, vendors, marketing partners and so on. Therefore, the chances of contract disputes occurring can be high.
A significant percentage of businesses face litigation every year stemming from issues related to agreements. Ambiguity is one of the leading reasons behind such cases.
So, what can you do to avoid drafting ambiguous contracts?
Define key terms
Your agreements should have a dedicated section at the beginning that defines key terms. Provide clear definitions of:
- Parties involved, for example, “Company, “ “Employee,” “Contractor” and “Seller.”
- Industry-specific jargon, such as “Escrow,” “Property,” “Service Level Agreement,” “Scope of Work” and “Lead Time.”
This ensures that every time someone encounters a particular term in the contract, they know what it refers to.
Be clear
Avoid using statements that can be interpreted in multiple ways, such as reasonable efforts, substantial performance, high-quality materials, as soon as possible or in a timely manner.
You need to be clear, for example:
- The employee will make 20 client outreach calls per week
- The Employee agrees to meet all performance standards outlined in the performance contract
- The supplier guarantees that materials shall comply with (recognized) standards for (specific industry/material type)
- The supplier shall deliver goods within 30 days after a purchase order is created
Being clear leaves less room for misunderstanding, protecting you from disagreements.
Use plain language
Even though a contract is a legal document, it does not need to be overly complex. Using plain language makes it easier to understand. However, when technical terms are necessary, clearly define them.
Ambiguity in contracts can lead to costly disputes. Learn more about creating clear contracts and protecting your business when facing disputes.