Everything you always wanted to know about corporate contracts

30 Mar 2024 - Frans Vanhaelewijck

You’ve got the deal, now let’s do the contract

If you’re in the world of business, you know that a contract is an essential document for any commercial deal. It defines the scope, price, and terms of the agreement between two parties. But drawing up a contract can be a complex and daunting task, especially when dealing with big companies. In this blog post, we’ll give you an overview of what goes into corporate contracts and what you should keep in mind when drafting one.

Penalty clauses

One of the more difficult aspects of a contract is the inclusion of penalty clauses. These clauses outline what happens if one party (typically you, the supplier) breaches the contract, and they’re often used to discourage breaches from occurring. For example, if your company fails to deliver the project or certain features on time, they may be subject to a penalty fee.

Liability, insurance, indemnification

Limiting liability is another crucial aspect of a contract. This clause outlines how much each party (again typically you, the supplier) is responsible for in the event of a breach or other issue. This clause protects your customer from potential financial losses. There are ways to limit your company’s liability.

Insurance policies and indemnification clauses are also important to consider. These clauses outline who is responsible for any damages or losses that occur during the course of the contract. Big companies usually demand you have an insurance policy, but there is of course a cost involved.

Scope

This seems obvious, but exactly defining what is contracted is crucial:

• The procurement clause outlines how your services will be procured, including delivery timelines, quality requirements, and payment terms.
• The scope defined in the contract ensures that both parties have a clear understanding of what is being delivered. This section includes specifics such as the timeline for completion, the specific services being delivered, and any customization requirements. Remember that when things go wrong, people will refer to what’s in the contract.
• Another important consideration is the Terms & Conditions (T&Cs) of the contract. Often, both parties will have their own standard terms and conditions that they want to include. It’s important to negotiate and come to an agreement on these terms before finalizing the contract. Typically, being the smaller party, it’s advised to accept to work with the customer’s version and negotiate any changes based on their standard version. Asking the procurement and legal teams to review your version of the T&C’s will be difficult and will certainly bring many weeks of delay.

Master Service Agreements

A Master Service Agreement (MSA) is a document that outlines the general terms and conditions of a business relationship between two parties. It’s often used in long-term (typically 2 or 3 years) or ongoing relationships, and it helps to streamline the process of drawing up individual work orders.

Work orders are documents that outline the specific services or products being delivered under a MSA contract. They include details such as the timeline for completion, the cost of the services, and any customization requirements of a specific project.

Acceptance procedures and payment

Payments are another crucial aspect of a contract. This clause should outline how and when payments will be made, as well as any penalties for late payments (which most big companies will reject). Payments are typically linked to acceptance procedures. Carefully define these procedures and the linked payments.

Service Level Agreements

Service level agreements (SLAs) are often included in large contracts. They outline the expected level of service and support that will be provided, as well as the consequences of failing to meet those expectations. Sample SLA requirements are response times, expected load times, handling and resolution times of support tickets per priority level, downtime and so on.

To conclude

Drawing up a corporate contract can be a complex process, but it’s essential for protecting your business and ensuring that both parties have a clear understanding of the agreement. In future blog posts, we’ll delve deeper into these and other topics (like Escrow, Exclusivity, Change of Control, Right to Audit…) and provide more detailed information on how to create a successful corporate contract.