What is the purpose of a Contract?

While this may seem basic, it is something that I often discuss with clients. If you think about it, IT contracts are arguably more important than contracts in other industries. In most industries, the buyer purchases a tangible product they then own, or generally knows what type of services they will receive. However, in the IT world it is not that simple (most companies contacting a Boston Venture Capital firm already know this). As the buyer in the IT world does not ‘own‘ the product and often is unsure of exactly the type of service they will receive, I suggest that the contract is more important in this context and can be very helpful to the selling process.

Let me explain further.

1. The contract should explain/support the business model of the seller, and be 100% consistent with that model.

2.The contract should set the right expectations, so that the customer knows what they will and will not receive, and what the seller will and will not provide.

3. The buyer should be able to read and hopefully understand most of the contract without going to their attorney.

4. The contract should of course address what happens if things go wrong, but I suggest that is not the main purpose of the contract (see 1-3 above for main purpose).

I realize this is a very simple take, but that is really the point. Any company looking for investors or venture funding should take a look at their contracts and figure out their purpose. Remember, contracts are too important to be left to the lawyers!