What to watch out for in contracts that you sign

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Often we are bombarded by contracts that we need to sign, with little understanding of what we should be looking out for in them.

Even when your contract is for a small amount of spend, certain clauses in them can create a level of risk for businesses that has no connection to the spend – so it is extremely important to know what to look out for, but also to be able to evaluate these contracts quickly so that they don’t sap the time and attention you need to be devoting to other things.

So here’s a quick outline of the things to look out for:

Key responsibilities and service levels/KPIs

Be clear about:

  • key responsibilities
  • what is required
  • how it will be delivered
  • the standard
  • reporting requirements
  • and most importantly – the remedy (ie what will happen) if any of these items are not met. If you want a right of termination for an underperforming contract, make sure you clearly specify that.

Many times we find that key responsibilities, and detail relating to the required performance of a supplier, are deemed to be the most important parts of a contract, yet are given very little attention.

Timing and deadlines

If timing is going to be important, then you must specifically deal with this in the contract. Ensure there is a very clear timeline – and a right of termination (or adequate other remedies for you) if deadlines aren’t met.

IP ownership

If there is no mention in the contract of who owns the copyright and other intellectual property in the work produced for you, then it is likely that the supplier will be taken as owning the underlying rights, whilst the customer will hold a licence to the use of the works.

In simple terms, in relation to services, this means that if you (as the customer) want to use the work again in the future, you might have issues, or have to pay an extra fee.

Capturing pre-contract negotiations and promises

You must ensure you correctly capture any pre-contractual promises that may have been made during the negotiation process. Often a decision will be made to accept the proposal of one supplier over another because of the performance promises made during the negotiation phase. However, it is extremely common for these promises to fail to make it to the contract, or to not be included in a way that is enforceable.

Indemnity and risk allocation clauses

We often see indemnity clauses that are totally inappropriate for the contracting relationship that they are used in. Often a generic template will not have the right clauses to adequately deal with your particular contract relationship, so it is important to spend time understanding what risk allocation approaches are possible in a contract and how to effectively use them.

Other items you might also want to consider

This article doesn’t list everything that you will ever need to consider, but it does at least highlight the main areas that should usually be considered.

We have a free checklist available that sets out these other items that should be considered, in order to give you an easy overview of what you should be looking out for in your contracts. Just pop us an email to info@aspectlegal.com.au with the subject heading “5-minute contracting checklist”  and we will get it straight through to you!

Or if you would like to chat to us about any of your contract concerns – just click here to book in a free discussion with our legal eagles!

Click here – link to https://aspectlegal.acuityscheduling.com/schedule.php?appointmentType=964118

Aspect Legal is an innovative, proactive and value-driven legal practice, that specialises in helping businesses grow while protecting them from the storms of business.

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