Supply chain professionals and most business people enter into contracts on a regular basis. They sign procurement agreements, vehicle and equipment leases, maintenance contracts, banking documents and several other contracts in line with their business.
Some of these contracts are constructed in simple terms while others are incomprehensible. It is very common for professionals to just sign the contract without really reading, knowing and understanding the obligations and stipulations in the contract.
Things to look out before you sign
Every professional should learn the tricks in reviewing the contract. Every businessman must remember to review the stipulations in the contract before signing. Moreover, it is a good practice to periodically review existing contracts in your supply chain such as logistics contracts, banking documents and procurement agreements to determine whether they still meet your company’s needs.
Atty. Joanne Cassidy, a Huston Business Lawyer, said that a contract may merely sound as a simple agreement between to or more persons to do a particular thing, but when obligations are buried in the find print in the middle of a lengthy document it may put the other party in jeopardy.
Here are the things that you need to have an extra eye before signing any contract according to Cassidy:
1. Double Check the Business Terms
The business terms of the contract may refer to the price, amount, duration, delivery method etc. Every business professional should double check the business terms to determine whether it accurately reflects the agreement of the parties.
2. Fill in the Blanks
Take extra caution in completing all the blanks on any pre-printed form because someone may write unfavourable stipulations that can cause injury to your business operation. Moreover, be sure to have your initials on any deletions or changes on a contract.
3. Automatic Renewals
Examine if automatic renewals are present in the contracts. Check your contract whether they contain the following:
- Do you have to give notice if you do not want to renew?
- Are there penalties if notice is not timely given?
- Is renewal on the same terms as the original agreement? Are there price increases?
Consider adding options to renew on favourable terms.
4. Extra attention to the identity of contracting parties
Use the complete name of the business to avoid confusion and identify corporate officers as such.
5. Harmless and Indemnification Provisions
Examine hold harmless and compensation regulations. According to Cassidy, when you agree to hold a person harmless you are accepting to not hold him responsible of any liability that could emerge out of the deal.
When you indemnify a person, you are agreeing to safeguard him from liability or loss that might develop from the transaction. If you have to indemnify the other party, limit the compensation as high as possible. Bargain the exact same reparation yourself. As an example, if you, as purchaser, accept to indemnify the seller of a business for losses he may sustain as an outcome of activities after the sale, then he should indemnify you for losses you may incur as a result of activities before the sale.
6. Occasions of Default
Identify what acts make up events of default and whether you have the ability to enter into and carry out under the contract without creating a default. In addition, consider what should be needed to be included as events of default by the other event.
7. Remedies Arrangement
Evaluate provision solutions. Establish the worst that could occur to you if you default. Explore means to limit your liability. Also determine what sorts of solutions you require in the event of default by the various other parties.
8. Causes for Termination
Review causes for termination. Think about including ways to terminate the agreement if it is not working to your perk.
9. Days and Target dates
Inspect dates and deadlines. Consistently keep a calendar of days and deadlines for crucial occasions and anything required to be done by you or the other celebration.
10. Warranties and Representations
Testimonial and understand warranties and representations provided by you and the other contracting party. Do not give any sort of depiction if you do not in fact understand that the depiction holds true or if the other party is in a best position to know the facts being represented for.
If you need to give service warranties, try to restrict them as much as possible. For instance, a guarantee in a deed could state that you necessitate title to the home. You can limit the guarantee by stating that you warrant title to the residential property only throughout the time in which you possessed the property. Keep in mind that the other celebration is attempting to do the very same, so watch for disclaimers or limitations.
11. Rights and Responsibilities
Know all your civil liberties and duties under the contract. Carefully read the whole deal given that rights and duties are typically spread throughout the agreement.
12. Resolution of Disputes
Determine exactly how you intend to manage resolution of disagreements. An adjudication or mediation requirement might eventually conserve you great deals of time and money. Nevertheless, there are times when you may need to litigate to fix the disagreement. When ideal, attempt to offer yourself some adaptability.
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