What Is a Contract Checklist and its importance?
A contract checklist is a step-by-step list that helps you organize a contract's key parts before finalizing it. This helps reduce miscommunication, set expectations, and make sure both parties are on the same page. A contract checklist tries to minimize the chance of a breach of contract lawsuit.
Due to there are many types of contracts, a checklist becomes even more important. Many people don't realize that even a warranty, noncompete clauses, or a bill of sale are all types of contracts.
It is important after signing a contract to follow up on the agreed terms, to be sure to accomplish the obligations contracted. When the parties sign a contract there are obligations to accomplish, so do not forget to follow up closely. Today, we can find a lot of applications that can help us to correctly manage contracts. We recommend using contract management software for this purpose, as it will help you to mitigate risks of breach of obligations.
What Should I Include on My Contract Checklist?
Checklists should contain several items, including:
Offer
Acceptance
Parties Involved
Lawful Subject Matter
Mutuality of Obligation
Mutuality of Agreement
Valuable Consideration
A comprehensive breakdown of the contract checklist should include:
Identifying the Parties
Name of each business or individual.
The type of businesses (sole proprietorship, partnership, corporation, limited liability corporation).
Names of persons signing for each business.
The official title of the signer designates his or her authority to sign a contract.
Addresses of Each Party
Underlying Assumptions: what is expected of each party within the contract?
Purpose of Contract.
Terms.
General terms. This is also known as an entirety clause.
Force Majeure considerations. This outlines what would happen if something out of each party's control causes delays.
Rights of each party.
Parties should have the right to inspect the other's work for quality. If the work isn't up to a certain level, a clause should outline the timeframe to bring the work up to that level.
Quality levels that aren't met might result in termination. It might also allow for a replacement of the supplier.
Who covers the cost of delays and remedies of work?
Duties of each party: This is either an absolute or assumed obligation to use reasonable skill and care.
Enforceability clause: This gives each party the right to enforce the terms of the contract when they see fit.
Assignment provisions: This forbids one party from outsourcing part or all of the contract without the other party's permission.
Notice clauses, specify how notice should be given under the contract.
Relevant quantities, dates, and prices. Dates should include a start and end, as well as a term. This should also include a detailed list of each party's materials.
Payment terms.
Lump sum, installments, cash on delivery in the relevant type of currency.
Payment terms should also consider whether one party can deduct payments for flawed work.
Payment Dates: A payment schedule should come attached to the contract. Common payment dates include a specific day or number of days after receiving an invoice. The time period should be reasonable. It should also include any payment based on contingency.
Taxes: Details who is responsible for paying taxes at federal, state, and local levels.
Late fees: A late fee for underpayment or lack of payment agreed on by both parties.
Interest: Determines if late payments are subject to interest.
Disclaimers.
Applicable state law considerations.
Warranties.
Venue of any lawsuits involving the contract.
Liquidated Damages: Here you should mention any party's right to intellectual property. This should also include how damages are calculated.
Liability Limitations: This caps the number of damages one type can sue for in case of bankruptcy.
Indemnification Agreement
A statement of who is held accountable if there's damage to any goods during the contract.
The indemnification agreement also details that each party is responsible for claims, liabilities, injuries, suits, demands, and expenses that occur due to oversight or neglect.
If another entity sues both parties, this agreement might help with their legal defense as long as it's in the best interest of each side.
Arbitration Clause
This should note if disputes automatically go to arbitration.
It should appoint an authority that both parties agree upon.
Location of the arbitration hearings.
Governing Law: This determines what state law governs the contract.
Confidentiality Provisions: If one party gives the other sensitive documents, the confidentiality provisions protect the giving party against the receiving party selling or leaking the documents.
Statements that assure that the contract constitutes an agreement
Individual provision severability clause.
Signatures of authorized persons.
Notarization.
Checking for inconsistencies between the contract and supporting documents
Statements that outline terms regarding termination of the contract
If possible, it should also discuss if either party can suspend the contract permanently or temporarily.
Common reasons for contract termination include:
Prolonged delay
Prolonged Force Majeure.
Insolvency by one party.
Convenience.
Contractor's breach of satisfactory products.
Specification of who owns certain equipment or other assets at the end of the contract.
Any other documents of significance to the contract.
Renewability provisions.
Insurance: Make sure the deductibles and coverage are appropriate for both parties.
Criminal background checks.
Performance criteria and tests to check for expertise and completion: If performance is not met, this should outline whether it results in a remedy or termination of the contract.
Responsibility for Licenses and Permits
Mechanics Lien: This protects your party if the supplier doesn't pay its raw materials provider.
Evergreen Clause: This clause automatically renews the contract after the end of the specified term. This only applies if the supplier receives no notice of the contract's termination.
Alternative Dispute Resolution (ADR): These are helpful provisions that speed up any disputes during the contract.
It is important to have your legal department or lawyer review it. Once you sign, keep several copies of the agreement for your records, and do not forget to follow up on the acquired obligations.
Please take into account that contracts may vary due to the customs and legislation of each country.
Abogada/ Lawyer María Alejandra Tuozzo
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