Modern problems require modern solutions. Contract management is evolving to remain an effective solution for all business operations. In the new decade, as the nature of how we operate in the business alters, it is imperative that the contract management software change. Companies must equip themselves with reliable contract management software to adjust to the constantly changing world.
Every business has numerous contracts that are being executed concurrently in addition to the many contracts that are being created for future business. According to contractsafe.com, the most common source of stress in contracts is the multiple parties involved, procurement processes, multiple customers, numerous suppliers for the supply chain etc. The nature of business has changed. Contracts have to be drawn up with consideration of current demands.
What Is a Commercial Contract?
In the simplest sense, a commercial contract is a legally binding contract with two or more people. The majority of the time, commercial contracts take the form of writing documents; however, they could also be oral agreements in some situations. Commercial contracts define the specifics of what each party is required to comply with to allow the contract to continue to be valid and what consequences will be if any of the parties violate the conditions and terms.
The Key Clauses of a Commercial Contract: A Comprehensive Analysis
Contracts are utilized in nearly every field, and a lot of the contract clauses are applicable to all sectors. In fact, such clauses will almost certainly be included in any contract made. Commercial contracts particularly tend to contain a standard set of rules and regulations.
In commercial contracts, there are six major clauses:
Confidentiality
If two or more companies sign a contract, there will be an exchange of information for each side to fulfil their contractually agreed-upon obligations. Given the requirement to provide certain details about each of the parties’ financial and business procedures, it’s essential that the contract contain an explicit confidentiality clause. The clause must prevent both parties from sharing any information they share in the course of the transaction. Naturally, this is crucial when there is intellectual property worth millions of dollars in the transaction.
Force Majeure
The term “force majeure” literally means “greater force.” This clause should always be included in commercial contracts since it will protect the people from the effects of events beyond the control of any person’s. For instance, when there are natural disasters like a storm or earthquake or hurricane, a schedule for shipments may be disrupted. The concept of force majeure is quite broad, with numerous contracts that contain language regarding things such as terrorist attacks or the acts of God. This clause is crucial to include in order to make sure that any failure to fulfil due to unforeseeable disruptions is not considered to be a breach of contract.
Termination Triggers
Sometimes things don’t go according to plan in a business which is why parties need to be capable of cutting and running when needed. This usually means incorporating the termination clause in contracts. Whatever the remaining period in the contract, this contract clause should specifically define the circumstances in which each or both parties can end the contract. For instance: If either of them is acquired by an individual or entity, the other party to the contract could decide to end the contract.
Jurisdiction
Cross-border transactions are quite popular nowadays, both domestically as well as internationally. If the participants to a contract are from different states or even nations, it could be difficult to know the state law that applies to the particular contract. Therefore, commercial contracts should clearly declare which state will have power over the contract in order to ensure that the relevant laws are clearly stated.
Dispute Resolution
The most meticulously written contracts are susceptible to disagreement. Therefore, it is important to know the strategies of each party to resolve disputes should one arises. Companies are increasingly incorporating arbitration clauses within their agreements, which requires the parties to accept arbitration prior to or in lieu of settling the issue through litigation. While some contracts permit traditional legal recourse, however, it is typically more efficient and cost-effective method of settling disputes relating to contracts.
Damages
Due to the high rate of contract infringements and the necessity of preventing these, it’s typical for commercial contracts to incorporate clauses for damages clauses. Liquidated damages clauses, which usually comprise an amount that is fixed if the other party fails to fulfil the contract, are included in the majority of contracts. Based on the degree and impact of the breach, courts can decide to award different types of damages in addition to the amount.
Final Thoughts
Whatever how big your company or the field it is operating in, it’s essential that commercial contracts are carefully written and reviewed prior to signing as well as frequently.
