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Most Common Contract Clauses You Need To Look Out For

a group of business partners reviewing a contract

Signing contracts is an inevitable fact of business (and life). 

And yet, signing a new commercial contract can feel intimidating to anyone without a law degree. After all, everyone has at least one story of a friend or family member who lost enormous amounts of time, money, and resources, all from hastily signing on the dotted line

Luckily, this process can be much less overwhelming if you know what to look for. By looking out for some of the most common contract clauses and understanding how to approach them, you can ensure that both parties come to a clear, collaborative agreement without feeling taken advantage of.

What Are Common Contract Clauses?

Before we delve into the contract clauses themselves, let’s establish what functions a contract should serve for you and your business. 

A contract is a verbal or written agreement between two parties where one party offers products or services in exchange for monetary gain. Given that these agreements are critical to any functioning business, it’s important that these contracts explicitly establish the obligations for each party and what the repercussions are for not fulfilling them. 

Though the common elements of a contract can vary widely between industries, a few key clauses exist in just about any effective agreement. Luckily, you can avoid potential risks, litigation, and reputation damages all by carefully evaluating these standard clauses in any future contracts you sign.

Related: Contract Management Best Practices for Modern Businesses

Force Majeure

The Force Majeure establishes the conditions under which parties are not obligated to act according to the contract. This is critical because it prevents breaches of contract in situations outside of a signee’s control and is typically intentionally broad for exactly that reason.

Force Majeure can often include circumstances like natural disasters, war, pandemics, or terrorism. For example, if a shipment cannot reach the other party because of a hurricane, a reasonable force majeure will protect the signee from a breach of contract.

Confidentiality

Hand signing a contract

A confidentiality clause is critical in any contract, but it’s especially important when the parties must share valuable information to perform their obligations. Within this clause, each side must include strongly-worded language concerning any trade secrets, confidential information, sales strategies, and anything else the business doesn’t want to be exposed to the general public. 

Sometimes, even a simple confidentiality clause isn’t enough. In cases where you must share such information, consider expanding upon this clause with an NDA to ensure your business is fully protected. 

Jurisdiction

With the rise of the internet age, it can feel like we’re all citizens of the world more than anything else. Still, if you’re doing business across state or national lines, you’ll need to keep geography in mind. 

When the contract parties are based in different states or countries, the jurisdiction clause will establish which state/nation’s laws will govern the agreement. In that light, it’s essential to look at which government is stated in this clause and make sure you understand any specific laws that may pertain to your agreement before agreeing to its jurisdiction.

Related: Why Legal Teams Love Revnue’s Contract Management Platform

Termination Triggers

No matter how sure you are before signing a contract with someone, there’s always a chance that your agreement doesn’t work out as expected. That’s why the termination triggers clause dictates how each party can terminate the deal and how long the notice period is. 

Even though this section is pretty standard, it’s still a good idea to read through it to ensure that both parties find the terms reasonable. If not, you risk finding yourself stuck in an agreement you no longer want to be in.

Liquidated Damages

The liquidated damages clause acts as a deterrent for contract breaches on either side of the contract. This clause states the amount of money that one party will be required to pay the other in the case of a breach of contract.

It’s essential to look at the liquidated damages section and evaluate whether you consider it reasonable for either side. Be sure to consider the value of the service provided and the damage done to the non-breaching party if this obligation isn’t fulfilled.

Looking for a better way to collect data from past contracts? Contact Revnue to learn about our AI-powered data processing.

Dispute Resolution

The dispute resolution clause establishes how the parties plan to resolve any conflicts that may arise while fulfilling the contract’s obligations. Naturally, if these methods don’t work, the parties are open to pursuing litigation. Still, this clause helps create a plan for maintaining a positive and mutual relationship ahead of time and allows both parties to avoid litigation through faster and cheaper methods of conflict resolution. Some of the most common methods listed in this clause include negotiation, mediation, or arbitration.

Steps To Effectively Manage Contracts

Two people reviewing the terms of a contract

There are several steps to a successful contract’s lifespan, beginning with the pre-contract work. However, before you even draft a contract, you must develop a strategy for how you’ll manage the agreement.

One of the best tools for doing so is a contract management software. Contract management systems like Revnue allow you to evaluate all of your contracts, assets, and customers in one place while providing valuable analysis and AI tools to ensure you’re getting the most out of your arrangements. 

Once you’ve laid out a plan for carrying out the contract successfully, you can begin moving through the contract management process. 

Step 1: Pre-Contract 

The pre-contract stage is your time to draft the agreements before they are reviewed and signed by both parties. 

Step 2: Handover

During the handover, the contract is transferred to the person monitoring the contract once it goes into effect. You will need to make sure the contract manager is up to speed with all the details and obligations of the agreement.

Step 3: Contract

The contract period is the time during which both parties are working to fulfill their obligations as the agreement laid them out.

Step 4: Pre-Renewal

Once the contract is close to completion, each party must evaluate the impact it has had on their business to determine whether the agreement should be negotiated, renewed, or terminated altogether. 

Step 5: Closeout

The closeout is your chance to tie up any loose ends before the contract is officially terminated. Then, you can evaluate any successes or mistakes made in the process to adjust the way you approach any future agreements. 

Interested in discovering how a contract management software can maximize your contract’s potential? Contact Revnue to learn more about our end-to-end AI solutions.

Final Words

Having a carefully drafted contract and an effective contract management strategy is essential to avoiding the unwanted fees, legal battles, and breaches of contracts that can come with a hasty management system. With an AI-powered, cloud-based system like Revnue, you can feel confident that your contracts are taken care of.

More Resources:

5 Common Contract Drafting Mistakes

How To Choose The Right Contract Management Solution For Your Business

How to Accelerate your Contract Management Workflow with eSignatures

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