Beyond the Boilerplate: Updating and Reviewing your Commercial Contracts
Business contracts take many forms, but there are five key elements that companies should utilize in each to help them maintain a low risk profile and reduce their potential exposure in costly disputes. As the end of the year approaches and companies review their business practices, it is important to take the time to review and update contracts to ensure they incorporate these elements.
Insurance. Most contracts contain insurance requirements, and it is important to review these requirements to confirm that you are complying with any that are applicable to your company and to ensure that any entity you contract with maintains the requisite insurance to protect your company. This may include, for example, commercial general liability or property insurance.
Limitations of Liability. Businesses should evaluate their level of exposure in every contract and negotiate accordingly. For starters, determine how the liability should be measured; e.g., actual value, retail value or replacement value. Some contracts require that a party enter a specific value if they would like to seek a higher limitation than what is included in the contract. Furthermore, parties should be familiar with any laws that may affect the enforcement of a limitation of liability provision or impose a lower limit than that asserted in the contract.
Term. Contracts must have a term or time limit in which they are to be performed. Companies should review whether their contracts have any additional liability for delays in performance or whether the contracts assert that “time is of the essence.”
Time Limit for Claims. Although the law may establish lengthy time limits to file a claim, a contract may restrict the time limit to file or assert a claim if a dispute under the contract arises. Companies should always be mindful of such time requirements should a dispute arise.
Choice of Law and Forum Selection. This provision allows the parties to a contract to designate the law and court that will adjudicate any dispute between them. If your company is using a boilerplate contract, it is important to review this provision. In considering which forum should be applied, evaluate the geographical convenience of a particular jurisdiction and whether federal or state courts are better equipped to handle the particular dispute that may arise with your type of business.
Remember that every contract is negotiable. If you have any concerns about a contract that your company is utilizing or that is required as part of your business practice, contact legal counsel for specific advice. For more information, contact Michelle Mejia at (312) 279-2836.