Contract Review Checklist
Do you have a contract on your desk right now just waiting for your signature? If you are like most small business owners- you do. Business owners enter into agreements all the time. People make some agreements with nothing more than a handshake. But others are more formal, the kind that we record in writing. Before you sign on the dotted line, make sure you thoroughly read and understand the contract. To help you, here are just some of the things to look out for:
Did you identify all parties properly?
Who is responsible for the performance of the contract? Will you sign in your own name or on behalf of your company? The parties are typically identified in the very beginning of the contract, and your review should begin there. If you are personally identified as a party to the contract instead of your company you may be personally responsible for the performance of the contract.
What is the term and does it renew automatically?
The agreement should state term of the contract towards the beginning. Review the contract to ensure that the term is what you agreed to during negotiations. Additionally, look for any automatic renewals or notice not to renew requirements. Some contracts may stipulate that the term will renew automatically unless you notify the other party within a specific amount of time of your decision not to renew.
Did you negotiate all terms?
Most contracts contain copious amounts of boilerplate language. Consumers and business owners alike assume these terms cannot be negotiated. They can be! And they should be. While it is unlikely you will be able to negotiate your cell phone service provider agreement, if you are negotiating with a small or medium-sized company don't be afraid to ask about those indemnification or attorney fees provisions.
Does the contract accurately reflect the negotiated terms?
You have spent weeks negotiating the terms. Going back and forth until- finally! - both sides are happy with the terms. Now the written document arrives for your signature. This is the point in the contract review process where you must ensure that everything that was discussed is in the agreement. Do not rely on the fact that it was discussed and agreed to. Just about every contract will have a provision saying that the written agreement is final agreement and the only one that counts. Anything discussed and not included in the written contract doesn't count and will not be enforced.
Who is indemnified and who should be?
Indemnification is essentially a promise to hold the other party harmless if something goes wrong. Typically, the party that seeks indemnification is the one that has the most to lose. However, these provisions need careful review and scrutiny to protect your interest. Indemnification clauses can be very specific or extremely general. A badly drafted or overly general indemnification clause can result in significant liability.
What events trigger a default?
Generally, a default is when one party does not perform its obligations under the contract. For example, not making a payment when due or failing to deliver the goods. However, a contract may stipulate that other actions constitute a default as well. Review the contract to ensure that your actions will not result in a default.
What remedies for default have you included?
Your supplier failed to deliver a shipment. He's in default. Now what? A good contract will specify the available remedies. Review these before you sign. Watch out for liquidated damages as these are generally disfavored and often costly.
How will you resolve disputes?
Disputes will happen. It is human nature to disagree. How disagreements are handled, however, can be agreed to in advance- while both parties are on better terms. There are numerous options: arbitration, mediation, litigation. There are also venue and choice of law provisions to consider. While these terms may seem innocuous, they are anything but. A close review and understanding of these provisions may save you a lot of money and many headaches down the road.
Who can terminate the agreement and how?
The relationship is no longer working. You want out! But how? The contract review process should focus on all eventual possibilities and this is one of them. Look for termination notice requirements. The clause should specify who can terminate, whether for cause or for any reason at all, how much notice is required, and how notice must be given.
Need more help? Contact me today to discuss your agreement and let me review it before you sign.
This post is for informational purposes only. It is not intended to be, nor should it be construed as legal advice. Always consult an attorney, licensed in your state, before taking legal action.