Congratulations. It’s just rolled in. That big, lucrative contract that you worked day and night for has just landed on the table.
Before you pull out your prize pen and sign on the dotted line, it’s important not to get too embroiled in the moment. After all, while some contracts can have huge financial sums attached, as the old saying goes, you should also never forget the small print.
Today isn’t about going over the classic contract faux pas’ that have probably consumed millions of businesses over the years. Instead, it’s all about covering some of the big red flags you should look out for before you pledge any long-term commitments.
Does the Other Party Have Adequate Legal Cover?
When we talk about legal cover, it will differ depending on the industry you’re involved in. For some, it might be about plain, simple public liability insurance cover. For others, it might be a little more specific, perhaps along the lines of a specialist indemnity policy.
Regardless, ensure that the party you are dealing with is appropriately covered. The last thing you need is for things to go pear-shaped and you to be left with the legal consequences.
You might be poised to sign a contract worth twice as much as anything you have previously considered. However, if it’s with a third party with a less-than-perfect reputation, you’re asking for trouble.
When we talk about reputations, it could revolve around anything from their financial situation (i.e., are they late payers or is their balance sheet all over the place?) right the way to the quality of the products or services they provide. If they’re below par on any element, ensure this is factored into your risk assessment.
Length of the Contract Period
In most cases, the length of the contract period shouldn’t be a major cause for concern. However, if you’re looking at something that will tie you down for a long time, it’s important to ensure that you have exit clauses in place.
Exit clauses could relate to anything from a change in the law that would make it difficult to comply with the contract to the other side breaching the arrangement themselves. If you’re unsure about something, seek professional advice before you sign on the dotted line.
In some cases, it’s not unusual for a contract to require some upfront payment before any of the main work is delivered. However, if you’re being asked for a large sum of money, this should be viewed as a red flag.
Upfront payments are often a way for the other side to reduce the financial risk they’re taking on. At the same time, they are commonplace in some industries. This is again something you need to balance out for yourself.