Whether you’re drafting a contract for a client or signing an agreement with a supplier, certain key terms should almost always be addressed. A well-structured business contract typically includes:
- Parties: Clearly identify the legal entities involved (your business and the other party). Use the full company name or person’s name and address. This seems basic, but it’s important – the contract can’t be enforced against the right party if the party isn’t named correctly.
- Scope of Work or Goods (Deliverables): Describe what you are buying or selling. For a service contract, detail the services to be performed. For a sale of goods, specify the products. Be as detailed as necessary – include specifications, quantities, quality standards, and maybe a reference to an exhibit or schedule if the description is lengthy. Ambiguity here can lead to disputes (“I thought you would also do X as part of this!”). If using a supplier contract, ensure it lists any standards the goods or services must meet.
- Payment Terms: State the price and payment arrangements. This includes the amount, currency, timing of payments, and how invoices will be issued. For instance, do you require a deposit upfront? Is the remainder due on delivery, or in installments? Also mention acceptable payment methods (bank transfer, etc.) and any late payment interest or fees. In a B2B contract, you may invoke the statutory right to interest on late payments (UK law allows charging interest, often 8% above base rate, on late B2B payments) or simply set your own late fee. Clarity here ensures you get paid on time and know what recourse you have if you’re not.
- Timeline and Delivery: If applicable, include deadlines or delivery dates. For services, when will the work start and finish? For goods, what is the delivery date or schedule? If timing is crucial, the contract can state that “time is of the essence” for certain milestones (meaning a delay by the other party would be a material breach). Also, address delivery terms: who is responsible for shipping or transportation, and when does the risk of loss pass to the buyer (for goods)? In international supply, use Incoterms if needed (FOB, CIF, etc.). In services, perhaps set out a project timeline or phases of work.
- Duration and Termination: Specify how long the contract lasts. Is it a one-off transaction to be completed by a certain date? Or an ongoing arrangement (e.g. a 12-month services contract or a rolling monthly subscription)? For ongoing contracts, include how either party can terminate: usually by notice (e.g. “either party may terminate by giving 30 days’ written notice after the first 3 months”) and also for cause (e.g. if one party materially breaches the contract and doesn’t fix it, the other can terminate immediately). Also consider what happens on termination: for instance, any final payment, return of confidential information or property, etc.
- Liability and Remedies: It’s common to limit your liability in a business contract, especially if you’re the one providing goods or services. A limitation of liability clause might cap the damages one party can claim from the other (e.g. limiting liability to the amount paid under the contract, or excluding certain types of damages like “indirect or consequential losses”). However, note that in B2B contracts, these clauses are generally enforceable if reasonable, but cannot exclude liability for death/personal injury due to negligence or for fraud. If you are the customer, you’ll want any warranties or guarantees spelled out (e.g. the supplier warrants their goods are of satisfactory quality or the services will be performed with reasonable care and skill), and possibly include specific remedies if they fail (like a right to repair or replacement, or a service level agreement with penalties if downtime exceeds X hours).
- Confidentiality and IP: If the contract involves sharing sensitive information or creative work, include a confidentiality clause (if not already covered by an NDA) binding both sides to keep each other’s confidential data secret. Also address intellectual property (IP) rights: for example, if a graphic designer is creating a logo for you, the contract should state that you will own the intellectual property in the final designs once delivered and paid for. If you’re supplying a software or licensed product, define who owns IP and what usage rights the other party has.
- Dispute Resolution and Governing Law: It’s wise to specify which country’s laws govern the contract (for UK businesses usually English law, or Scots law if in Scotland). Also decide how disputes will be resolved – many contracts have an escalation clause (e.g. senior executives attempt to negotiate) and then either litigation in courts or arbitration. For small businesses, litigation in local courts might be fine; for larger deals, arbitration could be an option. You can also specify jurisdiction (which courts would hear the case if it goes to court – e.g. “courts of England and Wales”). This avoids arguments later if the parties are in different countries.
- Other Key Clauses: There are many standard clauses often included at the end of contracts sometimes called “boilerplate.” These include things like force majeure (excusing performance due to extreme events like natural disasters – recent example: many contracts invoked force majeure during COVID-19 disruptions), entire agreement (stating the written contract supersedes any prior discussions), notices (how the parties will send official notices to each other), assignability (whether one party can transfer the contract to someone else – often restricted without consent), and third-party rights (usually to prevent outsiders from enforcing terms of the contract under the Contracts (Rights of Third Parties) Act 1999). While these may seem like legal fine print, they can have real implications. For instance, a force majeure clause might protect you from breach if something truly beyond your control happens.
Drafting a good contract with a customer or supplier is about being thorough, covering all the “what-ifs” of the business relationship. If you address the points above, you’re well on your way to a comprehensive agreement. Still, tailoring is essential: the risks of a consulting service agreement differ from those of a product supply agreement. At British Contracts, we draft contracts tailored to your specific needs at highly competitive fixed fees. Using our services ensures you don’t accidentally leave out a crucial term when finalising your contract.