Business contracts establish more than the terms of a transaction. They define what each party must do, when obligations must be fulfilled, and what happens if something goes wrong. Five contract clauses that can help businesses prevent costly business disputes include:

1. Scope of Work and Performance Clauses

A scope of work clause explains exactly what goods or services each party has agreed to provide. Without it, a business may believe certain tasks are included in a project while the contractor considers them additional work.

For example, a company hires a contractor to renovate its office. The agreement promises “necessary improvements” but never identifies specific repairs. When the company requests additional work, the parties disagree over the price.

A detailed clause should identify deliverables, responsibilities, completion dates, performance standards, and excluded services. Clear performance expectations give both parties a reference point when questions arise.

2. Payment Terms and Late Payment Clauses

A payment clause should state the amount owed, when payment is due, how invoices are submitted, and whether deposits or installment payments are required. It may also address disputed invoices, late fees, interest, and permitted collection expenses.

Consider a consultant who expects monthly payments while the client believes payment is due after the entire project. A specific payment schedule can prevent that misunderstanding. Also, late-payment penalties must comply with applicable law.

3. Contract Modification Clauses

A modification clause establishes a process for approving revisions to pricing, services, responsibilities, or schedules. Ideally, it requires written documentation identifying the change and approval by authorized representatives.

For example, a software developer may agree to add features that were not included in the original proposal. A written amendment can clarify the additional cost and revised completion date.

Importantly, a clause requiring written changes does not necessarily make every later oral modification unenforceable under law. Businesses should follow their amendment procedures consistently and preserve relevant communications.

4. Termination and Breach of Contract Clauses

A termination clause identifies circumstances that justify ending an agreement. A related breach provision may explain what qualifies as a violation, how notice must be delivered, and whether the defaulting party has time to correct the problem.

Suppose a supplier repeatedly misses delivery deadlines. The purchaser may want to find another supplier immediately, but the agreement could require written notice and an opportunity to cure.

Clear provisions should also address outstanding payments, unfinished work, and obligations that continue after termination. These terms can reduce arguments about whether ending the relationship was justified.

5. Dispute Resolution Clauses

A dispute resolution clause establishes how the parties will handle them. The agreement may require an initial attempt at negotiation, followed by mediation with a neutral third party. It may instead provide for arbitration, where an arbitrator decides the dispute, or permit litigation in court.

Businesses should consider the costs, procedures, and potential consequences of each option. Arbitration is not automatically cheaper or faster than litigation, and binding decisions may offer limited opportunities for review.

The clause may also identify the governing law, appropriate venue, and responsibility for attorney fees. Generally, each side ordinarily pays its own attorney fees unless a contract, statute, or recognized exception allows recovery.

How Can an Experienced Business Contract Lawyer Help?

Standard contract templates may overlook important details about a particular transaction. An agreement suitable for a service provider may not adequately address the needs of a commercial landlord, supplier, or business purchaser.

A business contract lawyer can identify unclear terms, explain legal obligations, and recommend provisions suited to the business relationship. Counsel can also assess potential remedies when another party fails to honor an agreement.

Seeking legal advice before signing may cost far less than resolving a dispute after obligations have been breached. If you have questions about an agreement or concerns about a possible breach, contact Stephen H. Ratliff to learn more about contract clauses to prevent costly business disputes.