Business contracts help protect organizations by clarifying their obligations and better ensuring their access to services or supplies. Contracts can provide access to retail space or can set the terms for a construction project. They can lock in supplier prices and set standards for outsourced services.
Generally speaking, contracts have to identify the parties entering into the agreement and clarify the terms of the business arrangement. Business leaders negotiating new contracts or preparing to renew existing ones may want to consider expanding their contracts to include additional clauses that can help protect the business. The following are some of the unique clauses that can help strengthen business contracts.
Penalty clauses
Businesses can encourage compliance with contractual terms by establishing penalties for contractual breaches. Late payment penalties are a common contract inclusion. If one business does not submit payment to the other on time and in full, then a penalty fee may apply. Businesses can also impose penalties for other significant breaches, such as failing to complete a project or violating a confidentiality clause.
Severability clauses
Many contracts impose a number of obligations on each party. A severability clause helps strengthen the contract as a whole and ensures that it remains enforceable even when there are minor breaches that occur. Minor contract breaches can sometimes lead to questions about the validity of the agreement and whether the arrangement between parties persists. Severability clauses help clarify when the agreement remains enforceable and when breaches of the contract may render it void.
Conflict resolution clauses
Business leaders may want to consider the possibility of a dispute arising and plan proactively to navigate that situation. A dispute resolution clause may require sit-down negotiations or even an attempt at alternative dispute resolution before a lawsuit occurs. The parties may need to attend mediation or arbitration to settle a disagreement rather than suing. Conflict resolution clauses help protect the working relationship between the parties. They reduce the publicity that can follow a contract conflict. Attempts to resolve the dispute outside of court can be faster and more cost-effective as well.
Creating custom contracts that extend specific protections to both parties is an important component of doing business. Business leaders may need help drafting appropriately protective contracts with terms that help optimize the organization’s protection, and that’s okay.