Business law includes various federal, state, and local regulations. Under the large umbrella of business law, there are various specialized categories associated with governing and regulating businesses. Some common examples of the different areas of business law that may apply to individual and entities include:
Within each of these categories are even smaller and more specific categories. Additionally, each state may have its own specific laws and statutes governing specific business topics, such as media and communication. An example of this would be business transactional laws in Pennsylvania may have provisions that are unique to that state when compared to other states.
A significant portion of business law addresses commercial and contract law. Commercial and contract laws govern a wide assortment of matters from business deals and sales transactions, to employee non-disclosure agreements. Because of this wide variety of aspects that contract laws regulate in business, this is largely considered to be the most important area of business law.
Examples of what business matters are governed by contract law include, but are not limited to:
- Merging with another business;
- Forming an agreement with a specific distributor to sell their products; and
- Providing a service to its customers.
What Is A Legal Contract?
A legal contract is any agreement that is considered to be enforceable under contract laws, whether at the state, local, or federal level. Most legal contracts are written and signed, although some jurisdictions recognize oral agreements as legal contracts. It is generally best for a contract to be formalized in writing, especially for valuable subject matters or considerably complex arrangements.
Legal contracts can be used by both individuals as well as organizations, such as businesses and corporations. Any legal contract must be entered into in such a way that is considered to be fair for both parties, and free of any:
- Fraud;
- Coercion; and/or
- Misrepresentations.
In order for a contract to be valid and legally enforceable, it must fulfill the requirements for a valid contract which are provided by state and federal laws:
- Offer and Acceptance: One party needs to make an offer, and the other party needs to accept the offer. Both the offer and acceptance must be accomplished in such a way that is clear and unambiguous;
- Assent: Both parties must mutually assent, or agree to, the terms of the contract. Additionally, they should be clear regarding the terms, words, and definitions that are used in the agreement; and
- Consideration: Each party must exchange something of value. An example of this would be how one party is generally providing a service or goods in exchange for monetary payment.
As was previously mentioned, some specific contracts must be in writing in order to be legal and enforceable. Examples of such contracts include contracts for the sale of real property, and contracts for the sale of goods that are worth over a certain amount. As a general rule, if it is over $500, it must be in writing.
If a contract is not valid, it will not be legally enforceable. There are many reasons as to why a contract can be invalidated, the most common reason being if one of the requirements listed above was not met. An example of this would be how if only one party assented to the agreement, the contract is not legally binding.
Additionally, depending on the circumstances, a court can declare a contract to be void. What this means is that the contract is canceled, as if it never existed, and the parties might then be released from their duties. In other cases, the court may declare the contract to be “voidable,” which means that the parties can cancel the contract at their own election. The difference between void versus voidable contracts is considerably technical, and may require the help of a lawyer.
What Is A Guaranteed Maximum Contract?
A guaranteed maximum contract is a specific type of contract in which the contractor receives compensation for any actual costs that are incurred, in addition to fixed fees. Essentially any savings that result from cost “underruns” are returned to the owner.
Also known as G-Max contracts, guaranteed maximum contracts are generally set in contrast to fixed-price contracts in which any savings are retained by the contractor. These savings are treated as additional profits. Guaranteed maximum contracts are a considerably newer form of contracts that focus on fairness in pricing between the parties. While they may not be available in all jurisdictions, they are quickly becoming a popular form of agreement in order to minimize risk in a construction contract.
Guaranteed maximum contracts work by setting a maximum amount for a given construction project; they also allow for adjustments once the true cost of a construction project is known.
An example of this would be if a contractor wants to charge $25,000 in order to relocate a piping system, but the true cost for the project is only $5,000. A guaranteed maximum contract may allow for price adjustment in order to reflect the true cost, once it is known to the other party. Alternatively, in a fixed-price contract, the owner may be required to pay whatever price was stated in the contract, even if it is well above the actual market value.
Instead of the parties having a near-adversarial relationship in terms of costs and pricing, the guaranteed maximum contract would encourage a more cooperative relationship for the project. As such, guaranteed maximum contracts work best for projects in which the owner and contractor are working toward a mutual goal.
What Are The Advantages And Disadvantages Of Guaranteed Maximum Contracts?
There are many advantages that are associated with guaranteed maximum contracts, including:
- Promotes a sense of trust between the parties, and makes the process more transparent in order to eliminate dishonest dealings;
- Reduces contractor negligence, as they are audited regularly throughout the process;
- The owner plays a more active role in the process, as they must often readjust their position in order to maximize savings for both parties, rather than maintaining an adversarial role towards the contractor; and
- Savings from cost under-estimates may be returned to the owner.
However, guaranteed maximum contracts are associated with some distinct disadvantages:
- Often involve more work on the part of both parties, and requires that the parties will be able to cooperate with one another;
- An experienced administrator is generally needed for help with the contract negotiations; and
- There may be difficulties when determining costs, and factoring additional pricing changes.
Guaranteed maximum contracts work best when both parties are willing to be flexible and adaptive to new factors or considerations that may arise during the course of the project. In order to avoid a breach of contract claim, it is generally best if an administrator and/or lawyer is retained for help with the contract terms.
Do I Need A Lawyer For Help With Guaranteed Maximum Contracts?
If you need help with a guaranteed maximum contract, you should contact an experienced contracts lawyer for advice. Your attorney can assist you with contract negotiations, as well as drafting and review of the contract.
An experienced contracts attorney can help you understand your legal rights and options according to your state’s specific laws, and will also be able to represent you in court, as needed, should any legal issues arise.
