Contract management is one of the most integral parts of business operations. It is the foundation of all business associations, and has the power to determine whether these associations are sturdy and long lasting, or ambiguous and weak. Mistakes in drafting or negotiating contracts can lead to future disputes, financial liabilities, and even damaged business relationships. Consequently, businesses hire company lawyers to help them draft strong contracts.
In this article, we will look into the most common mistakes that are made while drafting a contract, and how one can avoid these mistakes.
Failure to define the Scope of Work (SOW)
In a contract, the scope of work refers to the detailed description of all the tasks and deliverables that are part of the contractual agreement. It explains the purpose of the contract and what it aims to achieve.
A poorly defined SOW can lead to parties not clearly understanding their role and expectations. A party may expect more work to be done for the consideration that is decided. This ambiguity could lead to future disputes.
Ambiguous terms of contract
Vague terms in a contract are the number one cause of disputes because they allow for multiple, conflicting interpretations once a disagreement arises. These disagreements and disputes could lead to late deliverables, expensive and prolonged litigation process, and damage in business relationships.
Consequently, contracts must contain clear definitions and specifications. Care must be taken to replace vague terms such as “reasonable time”, “satisfactory quality” to specific periods of time (e.g., 40 days or 6 months) and measurable quantities (e.g., qualities that pass standard testing and certifications)
Non-compliance with laws and regulations
Contractual agreements must align with the laws and regulations of the applicable jurisdiction. Contracts formed for illegal purposes are void from the beginning. Additionally, if contracts contain specific terms that are against the laws and regulations, a general clause may be added to specify that such clauses do not invalidate the entire contract. Instead, only the specific illegal clause will be omitted due to invalidity.
Relying on verbal terms and failing to put them in writing
In certain transactions, despite the entities involved having drafted a contract, some terms are determined and agreed upon verbally, without being incorporated into the written agreement. This could potentially result in issues in the future. While some verbal agreements can be legally binding, they are difficult to prove in court. Consequently, it is highly advised to include all terms in the written contract.
Ignoring boiler plate clauses
Boilerplate clauses (standard legal clauses found in most contracts) are often skimmed, without heave scrutiny, However, these clauses determine how you resolve a dispute and limit your financial liabilities. Clauses such as ‘Dispute resolution’, ‘Governing Laws and Jurisdiction’, ‘Indemnification’, ‘termination rights’ etc., provide clarity and cover loopholes at the time of future disputes.
Conclusion
Contract drafting, if carried out with precision, scrutiny and a strong understanding of the purpose and expected outcome, can lend a strong foundation to your business transaction. It can help you avoid unwanted disputes and lead to healthy business relationships. It is therefore highly advised that businesses use the help of a company lawyer to draft important contractual agreements.
Under the proper guidance of professionals as those at Awatif Mohammad Shoqi Advocates & Legal Consultancy, clients can be assured of receiving expert legal assistance tailored to their individual needs. With over two decades of experience, this top-tier international law firm based in Dubai offers comprehensive legal solutions both locally and globally. Its highly qualified team of advocates and legal consultants provides specialized services across diverse practice areas, including family law, criminal law, civil law, corporate & commercial law, banking, maritime, transport, labour, litigation & arbitration, and real estate.
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Meta title- Common Business Contract Mistakes and How to Avoid Them
Meta description – Avoid costly business contract mistakes with our expert tips. Learn how to navigate common pitfalls and secure your agreements effectively.
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Category – Business
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