Important Contract Clauses That Every Organization Must Monitor

Contracts are an integral part of organizations. Since contracts have financial implications, the organization needs to monitor contracts right from the drafting stage to its entire lifecycle. The clauses in the contracts enable the company to understand, distinguish and concur certain commercial aspects, which when not duly taken the car, will result in a loss or legal dispute. Companies must establish the terms, conditions, and clauses regarding a few aspects with the involved parties during the initial drafting stage to avoid confusion. Here are a few important clauses that every organization, irrespective of their industry vertical must monitor to avoid financial and legal risks.

Force Majeure of Contracts

The recent event of pandemic across the globe has brought forth the importance of including a rainy-day scenario to avoid losses. Force Majeure refers to the inability of one or more partners to deliver on the terms and conditions of the contract due to uncontrollable circumstances such as natural disaster, political instability, or other such external factors. The quick spread of the Pandemic caused businesses to shut-down, which led to a huge economic crunch and force majeure of contracts. Deciding on the terms and conditions in the event of Force Majeure of contracts will help the partners to strategize and work better if and when a disaster strikes, and it will avoid the contract being deemed as a breach of terms. 

Arbitration

What happens when you face a breach of contract or an unresolvable issue? A breach of contract raises disputes among the partners, which often requires a third party, usually an arbitrator, to resolve such issues. It is essential to include the arbitration clause, where the partners can agree on the method and medium of dispute resolution and deciding on the penalties of a breach in contract. Organizations that skip including the arbitration clause often end up in bitter terms or dissolve their trade relationship due to the inability of the partners to reach a consensus. 

Confidentiality

Perhaps the most important clause that organizations should never overlook is the confidentiality factor. Contracts involve the communication of sensitive trade information, which is required to be confidential for the safety of the organization. In the course of business, there are chances for the trade secrets to be leaked out, which can cost the company both reputation-wise and financially. The management must include a confidentiality clause that covers a wide area and safeguard itself against possible threats and risks. It is especially important for companies that deals with proprietary products, software, information and more.

Jurisdiction

Contracts are legally binding and hence it must be verifies by a legal entity to establish their validity. However, when a company deals with a partner from another state or a country, the management needs to accommodate and adapt the laws of the land to avoid legal penalties. Trade laws change from county to county, and trading across the border is subject to the regulation of International laws. It is important to understand the different legislations and make amendments to the contracts according to the jurisdiction. Including a clause about the legal jurisdiction can save the company from a lawsuit or a loss.

Although companies generally take due diligence of the clauses of the contract, they need to review the clauses, update them and communicate the latest updates with the partners for a healthier trade relationship. Using Contract Management Software is a proactive step in staying abreast of the contract clauses and developments. DocuCollab’s Contract Lifecycle Management Software offers an array of beneficial features that helps in simplifying the contract process.