No two contracts are alike. While the scope and purpose of a contract will depend on the type of deal being papered and specific issues of importance to the parties, certain themes and provisions are common to a broad spectrum of contractual relationships. If you are new to commercial contract review, the below list of common contractual issues is a great place to start:
- Contract Parties. Who are the parties to the agreement? Many commercial arrangments involve subsidiaries and affiliates of larger corporate entities, so identifying which entities are entitled to use or have access to the contract services may be necessary. The parties that are ultimately responsible for performance under the agreement are identified at the top, along with a short description about why they entering the contract in the first place.
- Description of Products or Services. For any type of contract, the heart of the agreement typically focuses on the products or services to be delivered, along with the roles and responsibilities of each party. It's the who, what, when and where that matters most. Ancillary provisions may include specifications, requirements or quality standards relelvant to the product or service.
- Pricing and Payment. Clarity is of the utmost importance when it comes to describing price and payment terms, such as timing, amount, structure of compensation and consequences of non-payment and/or disputes. Other factors may include how payment is to be made, and in cross-border deals, what is the controlling currency.
- Term & Termination. The parties are usually bound by the contract for a distinct period of time. This may be described with reference to specific start and end dates, or by defining milestones that need to be reached. Ancillary issues may include whether the contract will auto renew; what, if any, are the consequences (refunds, penalties, etc.) of early termination; and are there circumstances when is early termination is allowed (e.g. breach, convenience)?
- Responsibilities, Representations and Warranties. Although the specifics will depend on the nature of the deal, this provision essentially captures the risks that each side wishes to protect against, and the guarantees given by each party. It can help to brainstorm a list of concerns for your particular deal type, and the preferred remedy for each one.
- Indemnity and Limitation on Liability. Similarly, the specific indemnities and liability caps will differ based on the deal type. However, in any deal, this provision describes what the other party will cover in the event you suffer a loss due to that other party's actions or inactions, as well as any limits on their responsibility to do so.
- Confidentiality (& Privacy). In almost all deals, confidential information is shared between the parties in connection with the provision of products/services (e.g. the agreement terms themselves and/or pricing are often labeled as confidential). If so, this provision will address who is permitted to receive confidential information, as well as what to do with it eventually (ie., return or destroy). If the confidential information includes personal data which is protected by law, appropriate safeguards and other compliance obligations may be included.
- Intellectual Property Rights. Most contracts will deal with IP rights. If involved, this provision will describe who holds the rights to relevant IP. Likewise, depending on the situation, this clause may include language granting a license to use such IP or transfering IP rights from one party to another. In either case, the contract usually describes what is included (or within scope) and what is not be addressed. Restrictions on use of IP, including a party's name or company logo, may also be included.
- Miscellaneous terms. So many small, but important, details are found in provisions like choice of law, choice of venue, dispute resolution, force majeure, assignment, waiver, notice, and other "boilerplate" provisions. The deal will serve as a guide to which of these, if any, needs greater emphasis or a special attention.
- Specialized provisions. Even more important than knowing how to respond to a proposed contract (what's already included) is knowing what may be missing from the draft. This is an underappreciated skill. Depending upon the specific nature of the transaction, it may be necessary to consider such terms as:
- non-solicitation (to prevent poaching of talent),
- non-compete (to protect a company's "secret sauce" from being shared)
- non-disparagement (to avoid unfavorable representations of the company)
- independent contractor and subcontractor language
- regulatory language (in highly regulated industries)
Once you know what to expect in a typical commercial contract, the drafting and review process will be much easier. With a basic understanding of how these clauses function, you are better able to anticipate how they may apply in your proposed deal and come to the negotiation table prepared.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.