Business Owners: Guide to Contract Considerations!
Katherine Hawes
Principal Solicitor, Digital Age Lawyers
April 2024
We are in an age where contract disputes are on the increase. When entering into contractual agreements, it’s crucial for business owners to thoroughly review and understand there contract documents before signing.
This understanding helps in protecting the interests of the business and ensuring the terms are favourable and fair for you.
This article outlines the key considerations to look for in contractual documents prior to signing
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1. Parties to the Contract
Identification of the Parties are correctly documented with their legal names and addresses along with an ABN. This includes subsidiaries or affiliates if they are part of the agreement.
Authority of Signatories needs to be verified to ensure that individuals signing the contract have the legal authority to bind their respective parties
2. Scope of Work or Deliverables
The contract should clearly define what goods or services will be provided in a Scope of Work or deliverables. This includes quantities, deadlines, and specifications.
There should be a variation process outlined for how changes to the scope of work will be handled, including approvals and adjustments to cost and timeline.
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3. Payment Terms
Pricing and Payment Schedules should clearly state the total price, payment milestones, and due dates for payments.
Any late Payment Penalties or interest charges for late payments should be clearly articulated in the document.
Dispute resolution for payment Issues should be a clause detailing how disputes over payments will be resolved.
4. Term and Termination
It is imperative to have and know the start and end dates of the contract. Look for automatic renewal clauses and conditions as well as your rights regarding termination of the contract early, including grounds for termination and notice periods.
5. Confidentiality and Intellectual Property
The contract should specify what constitutes confidential information and the obligations for its protection.
Ownership of Intellectual Property clauses should clearly state who owns the IP created during the contract period. This is crucial for creative works, inventions, and patents
6. Liability and Indemnification
Most contracts will limit the liability of both parties in some way. It’s important to understand these limits.
Look closely at clauses that require one party to compensate the other for harm or loss under certain circumstances.
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7. Warranties and Representations
Ensure that all representations made by both parties are accurate and can be relied upon. Understand the warranties provided for goods or services, including duration and exclusions, and how that warranty is activated.
8. Dispute Resolution
Identify the legal jurisdiction and venue for disputes. This determines which country or state laws will govern the contract and where disputes will be litigated. Many contracts include clauses for mediation or arbitration as first steps in dispute resolution, potentially saving time and money.
9. Force Majeure
This clause provides the circumstances that excuses one or both parties from performance due to unforeseeable events beyond their control, such as natural disasters. Understand what events qualify and the process for declaring force majeure. These clauses were significant during the COVID epidemic as suppliers could not fulfill contract obligations due to no fault of their own.
10. Compliance with Laws
The contract should stipulate that all activities conducted under the agreement will comply with relevant laws and regulations. Depending on the industry, there may be specific regulatory requirements that need to be addressed in the contract. For example, if you were a builder you need to comply with the Building Codes.
11. Notices
The contract should specify how notices should be given (e.g., in writing, via email) and to whom and all the necessary email and physical addresses for sending notices need to be current and accurate. There should also be a mechanism for updating any changes to these details.
12. Miscellaneous Provisions
There are some miscellaneous items that need to go into a compliant contract as follows:
- Entire Agreement which states that the contract represents the full agreement between the parties and supersedes any previous discussions or agreements
- Amendment Process to understand how the contract can be amended, typically requiring written agreement from all parties.
- Assignment of the contract or its obligations can be undertaken to to another party without your consent.
13. Signatures and Dates
Ensure the contract is properly executed with signatures from all parties. Note the date when the contract becomes effective, which may differ from the signing date. Ensure dates are included and each page of the contract is authorised with initials apart from the pages where signatures appear.
Conclusion
Carefully reviewing a contract before signing is essential for protecting your business interests. Understanding each of these key considerations can help you negotiate more favourable terms and avoid potential legal issues down the line. If there are areas of the contract that are unclear or seem unfavourable, it’s important to discuss these with the other party or seek legal advice.
Remember, a well-drafted contract is a foundation for a successful business relationship and protects your hard earmed assets.