Key Considerations in Commercial Contracts

The real value of a commercial contract often appears not when everything goes to plan, but when delivery is delayed, payment is missed, expectations are not met or one party wants to end the relationship.

1. Correct identification of the parties and signatory authority

The parties' full corporate names, addresses and relevant company details should be stated clearly. Where a company is involved, the authority of the person signing on its behalf should also be checked.

This is particularly important for high-value, long-term or secured transactions, where uncertainty about representation can later create enforceability disputes.

2. Scope of work and acceptance criteria

General wording such as “services will be provided” or “products will be delivered” is rarely enough. Quantity, quality standards, technical specifications, place and date of delivery, acceptance procedures and any measurable performance criteria should be defined.

3. Price, payment and price-adjustment mechanisms

The payment schedule can be as important as the total price. Advance payments, progress payments, milestone payments, payment on delivery or deferred payment arrangements should be set out clearly.

For long-term contracts, the effect of exchange rates, inflation, raw material costs or regulatory change can be addressed in advance. Without such a mechanism, unexpected cost increases often become a source of interpretation disputes.

4. Liability, warranty and liquidated damages

The contract should clarify who bears responsibility for defective performance, delay, third-party claims, data loss, production interruption or other losses. Typical points include:

• Warranty period and scope
• Consequences of delay
• Events triggering contractual penalties
• Liability caps and exceptions
• Insurance and security requirements

For merchants, the standards applicable to commercial conduct and the duty to act with due care are also relevant. A pre-signing risk review can reduce areas that later become “unexpected”.

5. Confidentiality, intellectual property and data

Trade secrets, customer lists, pricing information, technical drawings and know-how can be protected expressly. Where software, designs, branding, documentation or content are produced, ownership and licensing of intellectual property rights should also be addressed at the outset.

6. Expiry and termination

A termination clause should do more than state that “the parties may terminate”. Immediate termination for cause, renewal of fixed-term contracts, ordinary notice periods and obligations that survive termination should be considered separately.

Payment obligations, confidentiality, intellectual property, return of data and the treatment of outstanding orders may all remain important after termination.

7. Dispute resolution and governing law

Courts, arbitration, mediation or multi-tier dispute resolution clauses may be appropriate depending on the transaction. In cross-border agreements, governing law and contract language require particular attention.

8. A short pre-signing checklist

1. Have the parties and signing authorities been verified?
2. Is the scope measurable and sufficiently detailed?
3. Are payment and price-adjustment rules clear?
4. Are delay, defect and liability clauses balanced and workable?
5. Is the result of termination clear?
6. Are confidentiality and intellectual property addressed?
7. Are dispute resolution and notice details specified?
8. Is there a clear order of precedence between the main agreement and annexes?

Related practice area: Corporate & Commercial Law.

This article is provided for general information only and does not constitute legal advice for a specific transaction. Contract terms should be assessed in light of the transaction and the parties' circumstances.