Commercial Contracts and Agreements


Exploring and Managing Commercial Contracts

A commercial contract represents a legally enforceable agreement between two or more parties concerning a business transaction, such as the sale of goods or services. The contract outlines the terms and conditions governing the transaction or relationship, including aspects like the number of goods, nature of services, compensation owed to the seller, and repercussions if either party fails to uphold their end of the agreement.

If a party breaches the contract, the other party can seek legal recourse for damages or specific performance. Alternatively, parties may opt for alternative dispute resolution, such as arbitration, to avoid lengthy and expensive litigation.

The primary goal of entering a contract is minimizing potential disputes’ impact. Ensuring alignment and thoroughness during the contract drafting process can help prevent contentious legal battles later.

Common Types of Commercial Contracts

Although contracts can address any subject that requires agreement between parties, some prevalent types of commercial contracts include:

  • ‍Service Level Agreement (SLA) – An SLA establishes clear work quality expectations, including quality guidelines, delivery times, and service and support response times.
  • ‍Letter of Intent (LOI) – An LOI allows parties to discuss a potential business arrangement at a high level, ensuring alignment on critical points before diving into finer details. Although the deal may still fall through, an LOI helps parties assess the worthiness of further negotiation.
  • ‍Purchase and Sale Agreement (PSA) – This type of contract outlines the sale of specified goods or services at a predetermined price, typically for large individual purchases or numerous repeated transactions with the same vendor.
  • ‍Non-Disclosure Agreement (NDA) – NDAs safeguard a company’s trade secrets and sensitive information, ensuring external contractors or new employees do not disclose information that could harm the business or benefit competitors.


‍Six Crucial Commercial Contract Clauses

While various industries and deals require diverse types of clauses, six standard, and essential clauses to include in commercial contracts are:

  1. Damages – Establishing restitution for contract breaches can prevent lengthy court battles, save time and money, and potentially preserve business relationships.
  2. Confidentiality – Confidentiality clauses protect sensitive information from unauthorized access, ensuring that parties maintain the security of business dealings, intellectual property, and more.
  3. Dispute Resolution – Agreeing on alternative dispute resolution methods, such as mediation or arbitration, can streamline resolution processes should disputes arise.
  4. Jurisdiction and Governing Law – For international commerce, it is essential to determine which jurisdiction’s law will govern the contract and any related disputes in advance.
  5. Indemnification – Indemnification clauses outline when and how one party will protect the other from third-party liability resulting from contract fulfillment.
  6. Termination – Defining when the contractual agreement ends and releasing parties from further obligations is crucial. Termination triggers may include completion of sale and payment, predefined term limits, or contract breaches.

Managing Commercial Contracts

Contract lifecycle management encompasses creating templates, negotiating and drafting new agreements, reviewing contractual obligations for compliance and performance tracking, and ultimately renewing or terminating executed contracts.

While businesses with low deal volume and no in-house legal team might rely on law firms for contract management, companies with numerous active contracts require more efficient and cost-effective solutions. In-house counsel and procurement managers benefit from intelligent, fast, and secure systems that streamline contract drafting and management at scale. Cloud-based contract management software can enhance team efficiency, improve contract review and data extraction accuracy, and protect sensitive business information.

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