What are some of the key clauses or provisions that you include in your contracts to reduce contract risks?

Having a clearly documented mechanism for changes to the original scope of work is super important, especially on larger projects. Even a clear, concise, well planned scope of work tends to need some changes along the way. This often leads to disputes during invoicing and can even lead to delays on the completion of the project.

When doing projects that have plans, specifications and other documents that are part of a contract you signed, and you are using subcontractors to do some of the work, be sure to include a "requirements flow down" clause specifically including all those documents and stating that all subcontractors are contractually bound by the requirements given in those documents.

Furthermore, involving key stakeholders early on allows for early identification of potential challenges or constraints, enabling proactive problem-solving and risk mitigation strategies. Ultimately, this inclusive approach to defining the scope of work leads to a more efficient and successful contract execution.

Based on my experiences as a Third Party Contract Audit specialist 20+ yrs, my top 5 are: 1. Performance Metrics: Define precise performance metrics and deliverables while ensuring accountability and quality control. 2. Change Management: Establish a process for handling modifications to the contract, including explicit documentation and approval requirements. 3. Audit Rights: Include clauses granting the right to audit financial records and compliance to all terms and conditions 4. Payment Terms and Penalties: Clearly outline payment terms, including payment deadlines and penalties for late or non-payment. 5. Termination: Specify conditions and procedures for contract termination, to safeguard both parties against unforeseen issues.

Involve the team members and stakeholders directly responsible for executing the contract in the process of creating the SOW. By engaging them from the outset, you tap into their expertise and insights, ensuring that the scope is not only comprehensive but also practical and achievable. This collaborative approach fosters a sense of ownership and commitment among the team, leading to a greater dedication to meeting the contract's objectives.

Robust, fair and reasonable payment terms are essential and, in my view, should be the essence of the contract, but in fact being paid rarely is these days. That is to say that not being paid for your hard work and deliverables is not strictly a breach of contract. Pitiful 2% above base rate interest rates is the norm allowed when trying to get some compensation for late payment which often amounts to pence and never gets paid by the client on application. UK backstop Law is 8% above rates. Overly complex and contrived payment processes and systems that start end of month is also commonplace, further delaying payment. Beware of Activity Schedules” that do not accurately reflect the price of your deliverables for given milestones.

Escalation clauses in fixed price construction contracts have been relatively uncommon over the years, but with stress on the system caused by Covid, delays in construction, and costs rising with inflation, they have become absolutely necessary.

From my personal standpoint, providing a "not-to-exceed" agreement that encompasses repairs or replacements throughout the contract's duration at a reduced cost to the customer is a strategic move that marries financial prudence with customer satisfaction. This approach not only offers clients a sense of security and predictable costs but also establishes trust by demonstrating a commitment to the quality and longevity of the products or services provided. By aligning the customer's interests with cost-effectiveness and reliable performance, this agreement not only promotes a more transparent and cooperative relationship but also fosters loyalty and repeat business over time.

I've seen on many occasions where where the final date of payment is tied back to a invoice date. In accordance with the construction act the final date of payment should be tied to a fixed date which is the due date not a moveable date such as a invoice date. I'm no legal expert but I'm pretty sure these sort of terms aren't legally enforceable, if they were legal then the paying party could abuse this by deliberately allowing the contractors AFP to become the default notice then issue a payless last minute in which the contractor then issues a invoice which sets the final date of payment clock ticking from this point.

Termination of contracts can be risky if not managed properly or where there has been a failure to adhere to the termination or other fundamental clauses of the contract. In some instances, an aggrieved party who is in a haste to terminate a contract ends up creating a cause of action for the counter party to utilize in seeking redress either through Arbitration or Litigation. Beyond the length of notice clauses stipulated in contracts for termination, review other important clauses like renewal and payment before activating termination of a contract.

Termination is unfortunately becoming increasingly more important as many clients are terminating contracts “for convenience” these days. Particular attention needs to be given to the terms that include payment and title of goods on termination. It is common for clients to have general termination clauses in contracts that provide for sub-contractors going into liquidation, breaching contract terms etc. but are silent or at least sketchy over fair terms for payment on termination by the client where there is no fault attributable to the sub-contractor. In engineering it is common to have partially complete items and items on order at the point of termination, that are subsequently left with the sub-contractor to finance/restock.

Formal dispute resolution e.g., Adjudication, Arbitration or at a Court of Law is expensive, often disruptive, and rarely sees any party really winning or being fairly compensated for their losses. Mediation, whilst not legally binding, may be the answer in most cases and should at least be considered as part of a contractual dispute resolution process. It is important to be mindful of what can realistically work and where. I have recently been working on a contract that is under the Laws of the UK with additional clauses that allow for Sharia Law with a large Middle Eastern registered company as our client with formal dispute resolution as Adjudication to be held in Switzerland. I hope we don’t have a formal dispute!

In addition, to mitigate any dispute resolution, the contract should have a strong audit clause to allow validation and verification of charges Including provision of all available data in order to perform such an audit (the data required for such an audit should be described in details in the the contract, so to avoid any doubt). To add an extra layer of comfort, the clause should also include that any deviation above a certain threshold, then audit costs should be recoverable when performed by a third party.

Intellectual property (IP) by its obiquitous nature can be anything or everything. It is important that the term be clearly defined and distinguished between Background IP and Arising IP. A decision should also be made on how you intend to treat severable and non-severable IP where the severable IP is Arising IP that can be used without or separately from the Background IP. Due to the perceived complexity of IP and lack of its awareness it is often negotiated together with confidentiality. I prefer a stand alone IP clause with as much detail as possible including covering the potential for serendipitous creative output. Benefit sharing can be agreed in a separate contract considering the intellectual input of each party.

Engineers, and companies that provide any professional design service, should remove the term "work for hire". This term implies that you are creating something under the client's ownership, authorship and IP. It basically means that the design requires the client's logo and not that of your company. Thus, your professional liability insurance shouldn't apply. Obviously, that's not the client's intent.

Beware of boilerplate limitation of liability clauses. Believe it or not, you can "limit" a counterparty to MORE than just 12 months of fees. The direct, or indirect results of reputation damage and/or other potential damage(s) not factored into a SOW's actual fees/terms needs consideration here. Be able to support your position by providing data during the negotiation process that can quantify loss/damages by companies who suffered reputation damage by no fault. Additionally, ensure the indemnity clause does not exclude the counterparty's obligations here.

Never ever, under any circumstance, should you agree to indemnify and defend the actions of the indemnified parties. This concept is illegal in most states, but many clients insert the concept anyway into their standard templates. If they also add a clause called the Express Negligence Rule, then you are agreeing to ignore the state legal standard and you are accepting Broad Form Indemnity. Never allow this. If a client insists on this concept, you need to find different clients.

In contracts where use of software includes access to data or reports, it is critical to consider ownership of data generated by the normal use of the software and where that data will be warehoused virtually / physically and supplier capability for backup or disaster recovery.

In projects where software is used/included/required for use in the project and whatever resulting products that use that software be sure that software licenses are included and obtained from suppliers, along with backup copies of software for reloading in case of software failure, and copies of software development tools used to create the software to allow future modifications/changes when required.