Termination clauses and provisions that provide for damages can derail a business arrangement before it gets off the ground. At the same time, this contractual language can save your company a mountain of headaches and expenses should you enter into an agreement with a vendor or other business that can’t live up to its obligations. In Part Two of our series on business contracts, our Pennsylvania contract dispute attorneys examine what you need to know to maximize your company’s protections, while minimizing the risks before you put pen to paper and sign your name.
Is Contract Termination Clearly Defined?
Language detailing how the contract terminates or ends should be clear and concise. Termination isn’t necessarily a bad thing. Successful completion of the agreement through satisfaction of all written benchmarks and delivery dates could trigger the termination as easily as a failure to deliver finished products on time. In either case, contract language must state how and when the contract ends as well as what each party is entitled to receive, in terms of products, services or money, at that completion date. Any ambiguity in the language could cost your company more money by extending the length of the agreement past the desirable date.
Early Termination and Performance Milestones
An early termination clause can serve as a bailout option for your business if you’ve entered into an agreement that isn’t working out for both parties. Effective use can save your company time and, more importantly, money. Clearly defined and easily quantifiable milestones for the contract are ideal points upon which to attach an early termination clause. It’s hard to argue about not meeting a quantifiable goal both you and the other party have agreed upon in advance through signing the contract. For example, failing to deliver 200 completed products by a certain date could trigger a clause in the contract allowing your business to terminate the agreement.
Written Permission to Assign the Contract
The last thing your business needs is to enter into an agreement, only to have the other party assign the duties of that agreement to a third party. Include language in the contract that requires the other company or contractor signing the agreement to obtain your written approval before assigning any portion of the obligations to someone else. The dangers in a third party unknowingly completing portions of the contract are many, and can include inferior work and/or uncertified personnel completing tasks. This clause provides a measure of control over who executes the agreement and helps ensure you receive the products or services in the manner your business expects.
What about Consequential Damages?
Disputes regarding contracts can result in lawsuits. Suing for damages due to a failure of another party to perform their assigned duties in the agreement usually pertains to losses incurred through completing the work the other party did not, or fixing elements of the project the other party damaged. Including language that allows parties to pursue consequential damages can provide a path for your business to obtain compensation for lost profits due to the other party’s failure to satisfy the terms of the agreement. Not only can you obtain your company’s losses due to expenses, but also compensation for how the failure of the agreement affected your bottom line.
Have an Attorney Review the Contract
Good faith dealing is the cornerstone of any successful business, but there are those who would enter into an honest agreement with bad intentions. Having an experienced business contract attorney review the agreement can minimize the risks of unclear language or an absence of a key clause that could better protect your company should the other party violate its terms. A skilled lawyer can also discover language that could harm your company or give the other party lopsided powers over the agreement. The more information you have going into signing the paperwork, the better you can guide your business to a fruitful venture.