Commercial Contracts 101
Review contract is a process that, when done with care, not only protects you but can also save you from potential financial strain.
Top Tips:
Taking Your Time (without impacting the speed-to-close): Think of contract review as a protective measure, like a safety net. By reading each clause carefully, you're safeguarding yourself against hidden pitfalls that could lead to increased costs down the line. For example, missing an automatic renewal clause could lock you into a longer commitment than intended, leading to unexpected expenses. For more advanced inhouse legal teams, the review can factor in existing risk appetites and positions.
Filling in the Gaps: Templates are a great starting point, but they're just that—a start. Make sure every section reflects the specifics of your agreement. An incomplete contract might result in disputes over terms, which can be costly to resolve. If you’re working from your counterpart’s contract paper, knowing what is missing from the contract is sometimes just as important as reviewing what is already there (eg, limits of liability; mandatory law provisions).
Understanding Before Signing: It's vital to fully grasp every term you're agreeing to. Consider this: a clause that seems favourable on the surface might carry a hefty penalty for early termination (penalty in the non-legal sense). By reviewing carefully, you avoid signing up for terms that could be a financial and / or delivery burden later on.
Negotiation Is Key: Remember, contracts are a two-way conversation. If a term doesn't sit right with you, let's discuss it. Negotiating for better terms can prevent financial repercussions and align the contract more closely with your needs. Yes, sometimes contracts are present as non-negotiable (‘as-is’ types). If that’s the case, consider from the other angles, price and solution mitigations.
Deciphering the "Standard": Standard doesn't mean insignificant. Boilerplate language can have major implications. For instance, a non-compete clause might restrict your future business ventures, potentially limiting income streams.
By embracing a meticulous and thoughtful approach to contract review, you can prevent misunderstandings and reduce risks, ensuring that you're entering into agreements that serve your interests without the unwelcome costs.
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