Commercial contracts are among the most important legal instruments governing business relationships and defining the rights and obligations of each party.
Signing an agreement without a proper legal review of the commercial contract can expose a company to financial or legal obligations that were not fully understood when the agreement was signed.
First: Parties and signing authority
Key information to verify
- Correct legal name of each company or entity
- Commercial registration details
- Name and capacity of the authorised representative
- Authority of the person signing the agreement
- Valid power of attorney or authorisation where applicable
Second: Subject matter and scope of obligations
The contract should clearly describe:
- Services or products
- Scope of work
- Required specifications
- Deliverables
- Project timetable
- Obligations of each party
Why is the scope of work important?
The clearer the obligations are, the lower the risk of disputes regarding interpretation or performance.
Third: Price and payment terms
Companies should review:
- Contract value and pricing mechanism
- Payment dates
- Conditions for payment
- Method of payment
- Taxes and fees where applicable
- Additional work outside scope
- Consequences of late payment
Fourth: Contract term and renewal
- Contract duration
- Renewal mechanism
- Notice period for non-renewal
- Consequences of early termination
- Obligations surviving termination
Fifth: Liability and indemnity
The agreement should clearly address:
- Circumstances giving rise to liability
- Types of recoverable loss
- Liability caps, where applicable
- Exceptions to those limitations
- Interaction with insurance and guarantees
Broad liability or indemnity provisions should not be accepted without understanding their legal and financial consequences.
Sixth: Guarantees, penalties and liquidated damages
The contract may contain:
- Liquidated damages
- Delay-related compensation
- Bank guarantees
- Performance guarantees
- Retention amounts
- Remedies for breach
Seventh: Confidentiality and information protection
The parties should define:
- Confidential information
- Persons permitted to access it
- Permitted purposes of use
- Confidentiality period
- Exceptions
- Consequences of breach
Eighth: Notices and communications
The contract should clearly regulate notices relating to:
- Payment claims
- Objections
- Breach
- Renewal
- Termination
Ninth: Dispute resolution and jurisdiction
The parties should consider:
- The competent court or forum
- Applicable law
- Whether arbitration applies
- Negotiation or settlement procedures
Where the contract contains an arbitration clause
The clause should address:
- Scope of disputes covered
- Seat of arbitration
- Applicable rules
- Arbitral institution, where applicable
Arbitration clauses should not simply be copied from another agreement without confirming that they are suitable for the transaction.
Tenth: Termination and rescission
The contract may address:
- Material breach
- Late payment
- Delay in performance
- Failure to remedy a breach
- Insolvency or liquidation
- Termination for convenience where permitted and agreed
What happens after termination?
The contract should deal with:
- Outstanding payments
- Compensation
- Delivery of work
- Return of documents
- Return of property
- Continuing confidentiality obligations
Should a commercial contract be reviewed by a lawyer?
Legal review becomes particularly important where the contract is high-value, long-term, includes significant liabilities or guarantees, involves a foreign party, or relates to a regulated activity.
Conclusion
A proper commercial contract review can help businesses:
- Identify legal and financial risks
- Clarify obligations
- Allocate responsibility
- Reduce the likelihood of future disputes
Abdullah Mohammed Al-Shethri Law Firm provides commercial contract drafting, review and negotiation services.
Learn more about our contracts and agreements services.