Red Flags in Contracts (That Could Lead to Claims)

When it comes time to sign and date a contract, some small firms may succumb to the rush of wanting to get things done quickly instead of done right. Like any and every contract there should be a built-in importance level for going over every single line, every single section.

If businesses of any size or industry opt for breezing over sections and just initialing wherever they see a line, this can cause a problem later in the working relationship. Firms may need to lawyer up at some point if they feel like something went awry in their contract and architects and engineers professional liability insurance is always a good rule of thumb to consider. But before any controversies take place it’s good to know what to spot as a red flag before ink is put to paper.

Here are a few things to look for when going over a contract:

Non-Competes

A lot of contracts address that once a business or firm starts doing business with a company, they can’t do the same business with another company in the same industry. In some situations this can make sense, but firms should try to take these clauses out of a contract. If they can’t be taken out, it can at least be attempted to define them as narrowly as possible. If a firm or small business wants to grow then this kind of limitation will be very important.

Contracted Parties

Those looking over a contract before signing should scan the agreement to make sure that the contract is between the correct parties or corporate entities originally planned for. This is vital contractually to determine where exactly the money is coming from and who will be receiving said money.

Ownership of Work

Work that is produced as a result of a contract should be fall to a specific owner. There should be no ambiguity as to who owns the finished product borne from any contract. If the company is being paid to make a product or provide a service to customers or markets, this needs to be defined. If the company or firm is being paid to make something, the payor will typically own it, but it’s not rare for joint rights or continued access to be negotiated.

Penalties Due to Mistakes

Mistakes happen, but in the event that something goes wrong in the execution of the contract, what penalties will be assessed to either party are important to know about. Additionally, it’s good to know if there’s a “cure period” attached to a contract, which can come into play when a deadline is missed or one party is not satisfied with the work produced.

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