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Drafting and reviewing commercial contracts: 10 concerns for in-house lawyers

By Sterling Miller

Typically, the highest value use of most in-house legal departments lies in the preparation and negotiation of commercial contracts, i.e., the agreements that the company uses to sell (or buy) its products or services. The legal department is often the grease on the skids of getting these deals done – despite an often unwarranted label as the place where “deals go to die.”

The opposite is usually true. The in-house legal team finds ways to make deals happen, overcoming a wide variety of problems, some external and – sadly – many internal in origin. While some contracts are easy, most come with challenges. Regardless, all contracts come with risk and require attention to detail – something in-house lawyers bring to the table day-in and day-out.

Here are ten common concerns when drafting and reviewing commercial contracts:

  1. Relationship between the parties 
    Unless you have the right legal name for each party to the contract, you might have trouble enforcing it if there are problems. Likewise, are affiliates and subsidiaries included?
  2. “The Deal” 
    Surprisingly, many drafters stumble on clearly setting out the fundamental points of the agreement, i.e., who’s doing or getting what? Are other agreements incorporated by reference? Is everything clear? Be sure a third-party reading your agreement can understand the fundamental terms in the event there is a dispute. Clean, simple language (and examples) will serve you well.
  3. Price and payment 
    How much will the buyer pay, on what terms, and what happens if payment is late or not made at all? Equally important, is the buyer creditworthy?
  4. Term 
    How long is the contract and will it renew automatically? How can a party terminate it? What happens when the agreement is terminated?
  5. Allocation of risk 
    Perhaps the most important part of all contracts, what are the indemnities, warranties, service levels, limitations on liability, and are any types of damages excluded? Are representations from one party needed? Do you need joint and several liability?
  6. Changes 
    How can the agreement be amended? Is a formal change management process needed?
  7. Confidentiality 
    Is the agreement confidential, will the parties exchange confidential information? How will it be protected and what is the remedy for a breach?
  8. Notice 
    What situations require official notice to the other party? How and to whom will that notice be delivered. What form does the notice take?
  9. Intellectual property
    Is any IP licensed and on what terms? Is IP created and who owns it, what can each party do with it, and how is it protected (or escrowed)?
  10. Dispute resolution 
    How will the parties resolve disputes? In court, arbitration, mediation, or escalation (or some combination thereof)? Where will disputes be litigated and what law will apply? Will attorneys’ fees be awarded? Are special remedies needed? Where are equitable disputes heard?

For more detail on the above and other issues to consider when drafting and reviewing commercial contracts, see the Drafting & Negotiating General Commercial Contracts & Boilerplate Clauses Task, available with a free trial to Practical Law Connect.

Contracts are the lifeblood of any business

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