Business contracts protect both companies that enter into deals or agreements with each other. It’s critical that all the terms and clauses clearly state the terms. One way to do this is to ensure that all applicable topics are covered through provisions that are legally enforceable.
While the specific requirements and terms of contracts will vary based on the purpose and parties, these five provisions are typically critical.
Scope of work or services
The scope of work or services outlines what each party agrees to do. This must include as much detail as possible so there’s no doubt about which party is responsible for which duties. This section should include:
- Deliverables
- Deadlines
- Pricing
- Standards
A vague scope is a recipe for disagreement later on.
Payment terms
Everything regarding payment should be included in the contract. It’s best to clearly state payment amounts, due dates and method of payment. There can also be terms for interest charges, late payments or penalties in case deadlines are missed.
Term and termination
This clause should outline how long the contract will last and when it can be ended early. The terms for ending it early might include, notice requirements and termination fees or obligations.
Dispute resolution
Disputes may happen sometimes, so it’s best to set the terms for how to handle these when the contract is set. This clause may require arbitration or mediation before any litigation occurs. It may also name the jurisdiction for legal disputes.
Force majeure
Sometimes, events beyond anyone’s control, such as natural disasters or government shutdowns, make it impossible to fulfill a contract. A force majeure clause excuses non-performance under such circumstances and outlines what happens next.
It’s imperative that both parties thoroughly review the contract to ensure that it accurately reflects what is expected. It’s best to get legal guidance to review the documents prior to signing.