Importance of Contract in business
An entrepreneur has 99 problems and a contract can help solve almost half of them. A well-drafted contract is a key to a good and healthy business. One cannot even imagine starting a business without getting into a contract: from signing purchasing raw material from a vendor to hiring an employee everything is bound by a well-drafted contract or a written agreement. A contract is a written or spoken agreement concerning employment, sales, and other aspects and is enforceable by law. Now imagine getting in a transaction in older times, where two parties agreed to trade in barter, both the parties honored their commitment and the transaction was complete. Now imagine doing the same in the 21 st century, where we are all aware of the history of frauds in the corporate world. This is where contracts come into the picture. It lays down the expectations for both the parties and also protects both the parties as it is legally binding.
Importance of Written Contract
In Roop Kumar v Mohan Thedani (AIR 2003 SC 2418), the Supreme Court outlined the significance and consequences of reducing a contract into writing. It observed: “The integration of the act consists in embodying it in a single utterance or memorial- commonly, of course, a written one. This process of integration may be required by law, or it may be adopted voluntarily by the actors either wholly or partially. Thus, the question in its usual form is whether the particular document was intended by the parties to cover certain subjects of transaction between them and, therefore, to deprive of legal effect all other (oral) utterances”. “The practical consequence of integration is that its scattered parts, in their former and inchoate shape, have no longer any jural effect; they are replaced by a single embodiment of the act. This rule is based upon an assumed intention on the part of the contracting parties, evidenced by the existence of the written contract, to place themselves above the uncertainties of oral evidence and on a disinclination of the courts to defeat this object. Written contracts presume deliberation on the part of the contracting parties and it is natural they should be treated with careful consideration by the courts and with a disinclination to disturb the conditions of matters as embodied in them by the act of the parties.”
For those of us involved in regular business transactions as a part of our professions, even a normal exchange of goods or services often makes us wish that we had had a contract in writing with the opposite party. This is usually because most of us believe that several kinds of transactions work well on trust, but when things are ambiguous or go awry, we realize that a written document should have been in place and regret avoiding one to begin with. Thus, while written contracts are usually circumvented in day-to-day business transactions to do away with complications or avoid “bad blood”, one usually ends up creating more by choosing not to have them!
Contracts form the foundation of all business relationships. But with a growing number of contracts, an increasing complexity and the ongoing need for amendments, it becomes challenging to manage the valuable information in the contracts. Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It is a Relationship Management. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactively to anticipate future needs, as well as reacting to situations that arise. In other words, Contract management is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution and analysis for the purpose of maximizing financial and operational performance and minimizing risk. Contract management contributes significantly to a company’s financial health and is viewed as a strategic weapon in optimizing contract performance and improving the return on investments.
A contract is a formal document, accepted by both parties, employer and employee, and is the base for any flourishing business. Contracts provide better visibility to meet the duties and achieve the objectives as agreed per the agreement. It serves as a great support for building a good rapport with the customer or the desired party.
Concerning this, Contract management is a strategy adapted to manage contracts legally signed with customers, partners, or employees. Contract management includes adjusting the terms and conditions in contracts and ensuring adherence to the rules as per contract. Contracts guarantee a standard business procedure, by giving clarity of your requirements. It helps to achieve the desired goals easily and serves as proof in case the expectations of one party is not fulfilled. It is viewed as breaching the contract and the person has to bear the loss for the service.
It is important to get your contract drafted and approved by a lawyer legally.
Why do you need a contract? The main reason that you need a contract is to protect your rights when you enter an agreement with another party. For example, if you agree to help someone complete a project in exchange for money, you might have trouble getting the person to pay you if you don’t have a valid contract in place.