Key Contract Terms Part 1: Defining the Scope of Work
Everyone deals with contracts on a personal and/or professional basis. Whether you are renting your first apartment, hiring a builder to build your new home, signing a lease on a commercial space as a business owner, hiring sub-contractors to perform work for your company, or selling goods or services to clients, you will either have to review and sign a contract, or will have to present a contract to be signed by the other party(ies) involved.
As a business owner, writing a contract can be overwhelming and complicated, and it may even be tempting to use pre-written templates that are readily available online. However, each contract is different, and every business is unique. In our new Business Law Series, we will discuss key terms that every business contract should contain, starting with the Scope of Work or Services.
When you hire someone to do work for you, or you partner with someone on a deal, are you SURE you know what you are getting? And is it clear what you are delivering? If crucial details are not included, vague or ambiguous language opens the opportunity for different interpretation, often resulting in undesired outcomes.
The first key set of terms that should be in your business contract are those that define and discuss the scope of work or services to be performed. This section of the contract defines the parameters of a project and lays out the responsibilities and expectations of both parties. Defining the scope of work is critical for avoiding misunderstandings and disagreements, as well as for ensuring that the project is executed successfully. Businesses often fail to properly define the scope of work, leading to disputes, delays, and lawsuits.
Defining the scope of work is a detail-oriented process of identifying and documenting the specific tasks, deliverables, and responsibilities that are involved in a project. A properly prepared scope of work section of a contract will specify the services or products that will be provided, and any limitations or exclusions that may apply. Specifying what is not included in the scope of work can be just as important as defining what is included. Properly defining the scope of work provides clarity and specificity to the agreement, which helps to prevent misunderstandings and disagreements between the parties.
Consequences of Not Defining the Scope of Work
Disputes and Delays
An ambiguously worded scope of work often leads to misunderstandings and disagreements between the parties that result in delays in completing the project, work stoppages while the parties attempt to resolve the disagreement, and a loss of trust and future business goodwill among the parties.
Parties who are about to enter a contract may have different unstated assumptions about the scope of work or what happens after completion of the work regarding any warranty or guarantee obligations. It is critical that these differences are resolved before signing the contract. When one party assumes that certain services or goods will be provided, but the other party does not share the same assumption, this leads to disappointment, frustration, and mistrust. For example, if a construction contract does not clearly specify what products or materials are being installed or the quality of work to be performed, the client may expect a higher level of quality than the contractor is expecting to provide.
Unanticipated Additional Costs
Failing to properly define the scope of work can lead to additional costs. This can happen when one party assumes that certain services or goods will be included in the contract, but they are not. For example, if a contract to prepare architectural plans does not specify how many revisions are included in the contract, the client may assume that they can make as many revisions as necessary without additional costs. However, if the architect only intended to provide services up to and including a limited set of revisions in the contract, then the architect may need to charge the client for additional expenses for the work.
Poorly defined scope of work clauses often results in costly lawsuits when one party feels that they have been wronged or when the contract is breached. Accusations that one party engaged in a bait-and-switch often arise out of an ambiguously worded scope of work clause.
To avoid these consequences, it is important to properly define the scope of work or services in the business contract. It is important to be as specific as possible when defining the scope of work or services. If you are interested in speaking with an attorney about reviewing, revising or preparing a business contract that contains a properly defined scope of work clause please contact the business law attorneys at Skufca Law at (704) 376-3030.
Up Next: Pricing considerations
Stay tuned for our next blog in the Business Law Series: Key Contract Terms where we will discuss what you should consider when setting the price for your goods and services. Should your price be fixed or variable? How do you determine the payment terms? What are acceptable and reasonable methods and schedule of payment, and more.