Contract Review: Clauses That Deserve Attention

The organising question is not what happens if everything proceeds as planned, but what happens if it does not.

Scope and deliverables

Ambiguity here causes more disputes than any other clause. Specify what is being provided, to what standard, by when, and what is expressly excluded.

Where the work is iterative, define how many rounds of revision are included and what happens beyond that. Where deliverables depend on the other party providing information or approvals, state the consequence of delay on their side.

Acceptance criteria matter: who determines whether the deliverable is satisfactory, on what basis, and within what timeframe. Open-ended acceptance rights allow indefinite deferral of payment.

Payment terms

Amount, schedule, and what triggers each payment. Milestone payments tied to defined deliverables are preferable to time-based payments where work may slip.

Check late payment provisions, whether interest accrues, and whether you can suspend work for non-payment — the right to stop is a practical remedy that costs nothing to negotiate in.

Expenses and whether they require pre-approval. Currency and who bears exchange or transfer costs in cross-border arrangements.

Termination

Establish how either party exits. Termination for convenience with notice, termination for cause, and what cure period applies before a breach becomes terminable.

Check what survives termination: payment for work performed, confidentiality, intellectual property assignment, and any restrictive covenants. Also establish what happens to work in progress and materials.

Auto-renewal clauses deserve specific attention. Many contracts renew automatically unless notice is given within a narrow window, and missing it commits you for another full term.

Liability and indemnity

Limitation of liability caps exposure, commonly at fees paid or a multiple of them. Check whether the cap is mutual, since one-sided caps are common in supplier-drafted agreements.

Exclusion of consequential and indirect damages is standard and significant, since it removes lost profits from recoverable losses.

Indemnity clauses require one party to cover the other's losses from specified events. Read the scope carefully — broad indemnities can create exposure far exceeding the contract value, and uncapped indemnities are worth resisting.

Intellectual property

Establish who owns what is created. Default rules vary: work created by employees within scope typically belongs to the employer, while contractor-created work often belongs to the contractor absent written assignment.

Distinguish assignment from licence. Assignment transfers ownership; a licence permits use on stated terms. Clients frequently assume assignment where the contract grants only a licence.

Address pre-existing materials and tools separately, since providers usually need to retain ownership of their own reusable components.

Dispute resolution and governing law

Governing law and jurisdiction determine which state's law applies and where proceedings occur. A clause requiring litigation in a distant state can make enforcement impractical regardless of merit.

Mandatory arbitration clauses remove access to court and to jury trial, often waive class actions, and vary in fairness depending on who selects the arbitrator and who bears costs.

Escalation clauses requiring negotiation or mediation before formal proceedings are generally sensible and reduce cost.

Practical review approach

Read the whole document, including schedules and anything incorporated by reference — terms incorporated by link are binding and frequently unread.

Note that everything is negotiable in principle, and standard-form contracts are frequently amended when asked. The cost of asking is nothing.

For anything material, have an attorney review it. Review before signing is far cheaper than litigation afterwards.