4 Common Types of Contracts
In the not-so-distant past, business owners often confirmed a deal with a mere handshake. Among some prominent circles, this is still an acceptable way of doing business. Ideally, however, your organization employs the use of contracts to ensure you have the details in writing.
Contracts protect your business in the event of a dispute or litigation. If you manage business relationships with varying arrangements, contracts also provide a great resource for confirming the details. These are the most common ones you can expect to come across.
1. Non-Disclosure Agreement
Companies often request or provide a Non-Disclosure Agreement (NDA) when they have sensitive or confidential information to disclose. Some companies will insist that all vendors sign one just in case. These documents are usually fairly straightforward and generally do not involve any negotiation. NDAs determine what is confidential information, discourage disclosure, and state what actions will be taken against violators.
Signing an NDA happens very early in the process of creating business relationships and has very few fields to fill in. In most cases, the persons signing these documents will only need to provide their name, the companies they work for, the date, and their signatures.
2. Master Services Agreement
When two businesses enter into a formal relationship, a Master Services Agreement (MSA) details the terms of that agreement. When businesses have disputes, this is often the contract they review or that makes its way into court. This contract is known by several other names, such as Terms of Service.
The negotiation process for an MSA can often be long and tedious. It also contains a wealth of legal terms and industry jargon that might require the assistance of an attorney to properly navigate. Once negotiations are complete, it might still take a few drafts to properly iron everything out.
3. Order Form
Business owners also refer to order forms as Purchase Orders or Scope of Work. Whereas MSAs govern the entire future business relationships, Order Forms detail a specific, current transaction. As the name implies, they go into great detail about the items ordered, the expected delivery dates, and the cost. Sometimes, they can also include clauses related to canceling the order or making late payments.
Order Forms for products are generally more straightforward than those created for services. The more complex or artistic the service, the more complex the purchase order tends to be. Adding multiple deliverables and accompanying milestones can further complicate the process and lead to lengthy negotiations.
4. Buy-Side Contracts
This is a collective group of contracts used by procurement teams. They use them to source goods and services needed by the operations or production teams in an organization. These are sometimes used in place of sell-side contracts initiated by the persons providing the goods or services. Whether transactions involve buy-side contracts or sell-side contracts, they tend to involve third parties. This helps companies incorporate compliance, risk avoidance, and relationship management.
It’s also worth noting that buy-side contracts encompass a wide range of contracts. There tends to be a heavy negotiation process for buy-side contracts as the company is always interested in getting the best possible price. Buy-side contracts are also often used to re-negotiate existing terms.
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