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Legal Corner: Contracts 101 - What ever happened to the good old-fashioned handshake?
By: William Bock, General Counsel, League of Arizona Cities and Towns
August 2013
Some years ago I was teaching a business law class at a community college. We got to the chapter on contracts, and one of the students asked,
"Why do we need all of you lawyers to do a contract? Whatever happened to the good old-fashioned handshake?"
That question was not unexpected. Most people don't see the need for all of the formality that comes with a contract. When they make a
"deal" with someone, they know what they mean, or so they think.
So I gave my students an example. Let's say that you need to hire someone to do some painting. You have a person in mind who is a painter. And
you go to him and ask if he can do some painting. He says OK, I'll do it for $500 and you shake hands. It's a deal, right? You pay $500 and you
will get some painting done. But what is the deal? What do you want him to paint? When? What color or colors? Will he provide the paint, or do
you have to do that? What happens if you expect him to complete the work over the weekend and he does not? What happens if he doesn't show up?
When do you pay him, before or after he paints? If you think long enough, you can probably think of many more things that should have been thought
about before the handshake. And, if you didn't put the "deal" in writing, and didn't think about the deal, you might end up fighting later on
about what you meant by the handshake.
In my 38 years of representing municipalities, and having reviewed thousands of contracts, I would say that the single biggest problem that people
have with contracts that they give me to review is in the scope of work. What is it that you want? Have you thought it through completely? Have
you thought of the details of the "deal" so they can be put in writing? Even if you are using a "form" contract, the part where it says "scope of
work" is the most important thing you should focus on. Your attorney cannot read your mind. You must tell the attorney exactly what you want, so
he can put that into writing.
Many of my municipal clients often thought that a contract was simply a bunch of 8 1/2-by-11 pieces of paper that their lawyer made them do, and once
it is signed, it is just put on a shelf to collect dust. They really did not see the benefit of all of that paper.
One real-life example of a "scope of work" issue occurred when one of the departments I represented entered into a contract to train some employees on
how to properly investigate an alleged ordinance violation. When I saw the draft contract, I told them that the scope of work was very vague, much
like my painter example. I told them they should be more specific about exactly what their expectations were with regard to the specifics of the class.
They said they didn't have time to work on the contract anymore, and went ahead and signed it. The instructor came to the office to teach the class,
and my client then came to me and said the person was not teaching the way they thought-there were no power points, no hand-outs, and the class was much
shorter than they thought, and the subject matter was being treated very superficially. They did not want to pay him. I tried to withhold payment, but
ultimately that did not work, because the instructor had done the work-as he understood it should be done-and my client paid $25,000 to the instructor.
Then they hired someone else to do the teaching-but this time they listened to me and were much more specific than the first time. Not every scope of
work is as simple as my examples. But it should be clear, that "just shaking" on it, without thinking through the details of what you want done, could
leave you wishing you had spent more time doing it right.
One method that I have used to deal with this issue is a contract term sheet. It is something I give to my clients, and I ask them to fill it out,
answering all of the questions. It forces the client to "think through" the deal. Once the client has done that, then the attorney can do his or
her work, and put the terms and conditions of the "deal" into a legally enforceable contract.
Scope of work is just one part of a contract, but in my experience, it is the most important. Without a correct, detailed scope of work, it is difficult
to complete a solid contract that will protect the client from any future surprises or arguments.
If you have any general questions about municipal legal issues, please send them to me at wbock@azleague.org and I
may be able to provide an answer in a future article.
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League of Arizona Cities and Towns
1820 W. Washington St.
Phoenix, AZ 85007
Phone: 602-258-5786
Fax: 602-253-3874
http://www.azleague.org
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