Contract Checklist: Everything You Need to Know
A contract checklist helps you organize a contract's key parts before finalizing it which helps to reduce miscommunication and set expectations.5 min read
What Is a Contract Checklist?
A contract checklist is a step-by-step list that helps you organize a contract's key parts before finalizing it. This helps reduce miscommunication, set expectations, and make sure both parties are on the same page.
Why Is a Contract Checklist Important?
Contract disputes are common issues that require legal action to resolve. If one party doesn't hold up its end of a bargain, it might face a breach of contract lawsuit. A contract checklist tries to reduce the chance of this happening. It covers every aspect of the contract to make sure it's airtight. It removes vagueness and focuses on concrete terms that describe every aspect of the contract. Without a contract checklist, contracts might become problematic for one or both parties.
Because there are many types of contracts, a checklist becomes even more important. Many people don't realize that even a warranty, consulting agreements, noncompete clauses, or a bill of sale are all types of contracts.
What Should I Include on My Contract Checklist?
Checklists should contain several items, including:
- Parties Involved
- Lawful Subject Matter
- Mutuality of Obligation
- Mutuality of Agreement
- Valuable Consideration
A comprehensive breakdown of the contract checklist should include:
- Identifying the Parties
- Addresses of Each Party
- Underlying Assumptions
- This is what is expected of each party within the contract.
- Purpose of Contract
- General terms. This is also known as an entirety clause.
- Force Majeure considerations. This outlines what would happen if something out of each party's control causes delays.
- Rights of each party.
- Parties should have the right to inspect the other's work for quality. If the work isn't up to a certain level, a clause should outline the timeframe to bring the work up to that level.
- Quality levels that aren't met might result in termination. It might also allow for a replacement of the supplier.
- Who covers the cost of delays and remedies of work.
- Duties of each party.
- This is either an absolute or assumed obligation to use reasonable skill and care.
- Enforceability clause. This gives each party the right to enforce terms of the contract when they see fit.
- Assignment provisions. This forbids one party from outsourcing part or all of the contract without the other party's permission.
- Notice clauses, which specify how notice should be given under the contract.
- Relevant quantities, dates, and prices. Dates should include a start and end, as well as a term. This should also include a detailed list of all the materials each party needs.
- Payment terms.
- Lump sum, installments, cash on delivery in the relevant type of currency.
- Payment terms should also consider whether one party can deduct payments for flawed work.
- Payment Dates.
- A payment schedule should come attached to the contract. Common payment dates include a specific day or number of days after receiving an invoice. The time period should be reasonable. It should also include any payment based on contingency.
- Details who is responsible for paying taxes at federal, state, and local levels.
- Late fees.
- A late fee for underpayment or lack of payment agreed on by both parties.
- Determines if late payments are subject to interest.
- Applicable state law considerations
- Venue of any lawsuits involving the contract
- Liquidated Damages
- Here you should mention any party's right to intellectual property.
- This should also include how damages are calculated.
- Liability Limitations
- This caps the amount of damages one type can sue for in case of bankruptcy.
- Indemnification Agreement
- A statement of who is held accountable if there's damage to any goods during the contract.
- The indemnification agreement also details that each party is responsible for claims, liabilities, injuries, suits, demands, and expenses that occur due to oversight or neglect.
- If another entity sues both parties, this agreement might help with their legal defense as long as it's in the best interest of each side.
- Arbitration Clause
- This should note if disputes automatically go to arbitration.
- It should appoint an authority that both parties agree upon.
- Location of the arbitration hearings.
- Governing Law
- This determines what state law governs the contract.
- Confidentiality Provisions
- If one party gives the other sensitive documents, the confidentiality provisions protect the giving party against the receiving party selling or leaking the documents.
- Statement that assures that the contract constitutes an agreement
- Individual provision severability clause
- Signatures of authorized persons
- Checking for inconsistencies between the contract and supporting documents
- Statement that outlines terms regarding termination of contract
- If possible, it should also discuss if either party can suspend the contract permanently or temporarily.
- Common reasons for contract termination include:
- Prolonged delay
- Prolonged Force Majeure
- Insolvency by one party
- Contractor's breach of satisfactory products
- Specification of who owns certain equipment or other assets at the end of the contract
- Any other documents of significance to the contract
- Renewability provisions
- Making sure the deductibles and coverage are appropriate for both parties.
- Criminal background checks
- Performance criteria and test to check for expertise and completion.
- If performance is not met, this should outline whether it results in a remedy or termination of contract.
- Responsibility of Licenses and Permits
- Mechanics Lien
- This protects your party if the supplier doesn't pay its raw materials provider.
- Evergreen Clause
- This clause automatically renews the contract after the specified terms end. This only applies if the supplier receives no notice of the contract's termination.
- Alternative Dispute Resolution (ADR)
- These are helpful provisions that speed up any disputes during the contract.
After going through your checklist, it's still important to have your legal departments or an attorney review the contract. Once you sign, keep several copies of the agreement for your records.
Provision and Language to Avoid Checklist
On top of all the main information, it's also important to strike down damaging provisions and language by including:
- Vague words and descriptions.
- Attorney's fees.
- Using the word "agrees" instead of "warrants."
- An agreement for a state entity to provide insurance or become the agent for one of the parties.
- Exclusivity agreements, unless wanted.
- Statement of assumption for personal liability.
Questions About Contract Checklists
- How do I document payments?
Pay by check, and get a receipt. This gives you a paper trail proving you paid the right amount on time. Thirty percent is a reasonable down payment if required.
- How do I protect myself from bad contracts?
Always have a professional review the contract before signing. You should also do your own research on the other party in the contract. If they must have permits and licenses, ask to see them. You should also look for an Escalator Clause. These clauses automatically raise your payments to vendors each year. Always sign and put contract changes in writing, but do not sign an incomplete contract.
Contracts are confusing parts of your business. That's why it's important to trust the right attorney to review your contract and offer advice. If you need help or you have concerns about a contract, post your legal need for one of the lawyers at UpCounsel to address.