Scope of work and deliverables
The contract should clearly describe what each party will do. For service contracts, specify what services will be provided, timeline, quality standards, and deliverables. For vendor agreements, detail what products or services will be supplied, quantities, specifications, and delivery terms.
Vague descriptions like 'professional services as requested' create disputes later. Be specific about expectations. If the contract says 'project will be completed by June 30,' what happens if it's delayed? Is there a penalty? Does the client get a refund? These details matter.
Payment terms and pricing
Clearly specify how much will be paid, when payments are due, and what triggers payment. Are there installment payments tied to milestones, or is the full amount due on completion? What happens if there's a scope change—can the price increase?
Include details about late payment consequences (interest charges), refund conditions, and how payment disputes will be handled. Don't just assume payment timing; write it clearly. For services, clarify whether you're paying hourly, by project, or by deliverable.
Liability and risk allocation
Contracts often include liability limitations—caps on the amount one party can be liable for, exclusions for certain types of damage, or indemnification clauses requiring one party to cover the other's losses. These provisions significantly affect your risk.
Understand the liability terms. Does the contract limit liability to the amount paid? Does it exclude liability for certain damages (like lost profits)? Who bears the risk if something goes wrong? These terms should be negotiated based on risk allocation and your relative bargaining power.
Termination rights and conditions
How can either party exit the contract? Can either party terminate with notice, or only for cause? What happens to payment, ongoing obligations, or delivered work if termination occurs?
Some contracts allow termination for convenience (anytime, with notice), while others allow termination only for cause (breach). Some require substantial termination fees. Make sure you understand exit terms before committing long-term.
Dispute resolution and governing law
Contracts should specify which state's law governs the agreement and how disputes will be resolved. Will disputes go to court, or will you use arbitration or mediation?
Arbitration is often faster and more private than court litigation but may limit your appeal rights. Some contracts require mediation before litigation. Governing law matters because different states have different rules. If you're in California and the contract is governed by New York law, New York rules apply—which may surprise you later.
Confidentiality and intellectual property
If the contract involves confidential information or intellectual property, clarify ownership and protection. Who owns work product or intellectual property created under the contract? Are there restrictions on using information after the contract ends?
Confidentiality clauses protect sensitive business information. Make sure terms are reasonable—overly broad confidentiality restrictions can limit your future business. Intellectual property terms determine whether you or the vendor owns resulting work, which is crucial for creative or technical projects.
The red flag: silence
Sometimes what's not in the contract is the problem. If an important topic isn't addressed—payment timing, scope changes, who owns intellectual property, what happens if performance fails—you're relying on default legal rules, which may not favor you.
Before signing, think through what could go wrong and make sure the contract addresses it. Don't assume oral promises will be enforceable; get important terms in writing. When in doubt, ask questions or have an attorney review the contract.