When negotiating commercial contracts, it can be tempting to concentrate on commercial fundamentals such as the price and delivery times. However, it is also important that you check the “small print”, particularly if you are contracting on the other parties’ terms.
Whilst much of the small print will be “boiler plate” i.e. standard terms that usually always appear in contracts, there are other more important provisions that you should check. Not checking these could mean you agree to something that could cause you a lot of trouble commercially and legally further down the line.
Here are the 10 most important clauses to be aware of in your contract negotiation:
1.“Time of the essence” – a time of the essence clause could mean that even a small delay in delivery could entitle your customer to terminate the contract and sue you for damages
2.Fitness for a particular purpose – be aware that you could be agreeing that any goods that you are supplying are fit for a particular purpose, which you may not have fully considered
3.Warranties – you may be providing “warranties” (promises) in relation to all manner of things, including performance. If breached, these warranties could entitle the other party to sue you for damages and/or terminate the contract
4.Assignment of intellectual property rights – the other party’s terms may state that any intellectual property rights in the goods or services that you are providing are assigned to them, thus depriving you of the opportunity of exploiting them commercially elsewhere
5.Indemnities – terms of business often include indemnities which can allow the indemnified party to short cut legal proceedings, effectively handing them a “blank cheque”
6.Limitation of liability – you will no doubt wish to limit your liability to the other party, particularly in relation to “consequential losses” e.g. loss of profits. However, their terms may seek to make these limitations one sided, limiting their liability but leaving you exposed
7.Rights of termination – the other party’s terms may include express rights of termination in their favour, which you cannot rely on. This would potentially put you on the back foot legally if a dispute arises
8.Import/export requirements – the contract may contain specific import and export requirements, which must be properly considered. This is particularly important if you are dealing with a foreign counterpart
9.Right to sub-contract – you may intend to sub-contract some or all of your obligations under the contract. Keep in mind that many terms of business require the consent of the other contracting party if you intend to do so
10.Governing law and jurisdiction – if you are dealing with a foreign company, their terms may seek to incorporate a foreign law jurisdiction clause, meaning that any dispute will have to be dealt with in a foreign court, subject to local laws. This could put you at a distinct disadvantage should a dispute arise
It is important to consider these clauses and what may be thought of as the “smaller print” elements of contracts, in order to ensure that you are not putting yourself and your business at risk commercially or legally. It is for this reason that we recommend you seek professional legal advice to ensure you are protected during commercial contract negotiations.