Commercial Contract Management: How to Streamline It?
Virtually every industry deals with commercial contracts, but many companies miss the mark when managing these vital agreements. Here we will show you the best way to conduct commercial contract management.
Commercial contract definition
A commercial contract is a legally binding agreement between two businesses. These essential documents govern various business transaction regulations. The Uniform Commercial Code (UCC) is the primary authority that oversees these arrangements. Also referred to as a business agreement, both parties have to agree to do or refrain from doing a specific action to be legitimate. Typically, commercial contract agreements involve large sums of money, and their primary function is to ensure that the partnership is beneficial and follows regulations.
Key commercial contract clauses
Commercial contracts are found in almost every industry, and many of their clauses are applicable in various sectors. Because of this, some clauses will most likely show up in nearly every merchant agreement.
Here are some of the clauses that are typically found in business agreements:
This clause prevents either party from sharing or using information exchanged during the transaction unless otherwise stated.
This phrase translates to “greater force” and protects the parties from circumstances outside of anyone’s control, such as a natural disaster.
Termination clauses lay out the circumstances in which the parties may terminate the agreement if something doesn’t go according to plan.
A jurisdiction clause is included for business transactions that take place across state or country borders. The clause states which government’s laws apply to the agreement.
All business partnerships are susceptible to disagreements, meaning it’s critical to clarify what to do in terms of dispute resolution. Many firms now include an arbitration clause requiring the parties to submit an arbitration before taking legal action.
Commercial contract applications
The commercial contract agreement is used in various cases, with the primary function being to ensure that the arrangement allows the full commercial benefits to be reaped by both parties.
These legally binding business agreements are commonly used in cases such as:
- The supply of goods and services
- Financing and loan agreements
- Copyright and intellectual property agreements
- Licensing and franchising agreements
- Joint venture agreements
Commercial vs. non-commercial contracts
When creating a formal business partnership, it’s critical to know if you should enter a commercial or non-commercial agreement. This boils down to the goods or services being exchanged. If it does not fall under the Federal Acquisition Regulation (FAR) definition of commercial, it is, by default, noncommercial. However, contracting officers prefer commercial contracts because they are less of a burden than their counterparts, as they are subject to simplified acquisition procedures.
Commercial contract management process
Commercial contract management is the organization and negotiation of formal business agreements. As with any legal agreement, there are several steps to the management process. Contract management teams need to handle vital stages from drafting and renewal to analysis and enforcement. If these documents are mismanaged, your company and its partner may face legal troubles or maintain an arrangement that’s not beneficial.
Commercial contract checklists to speed up management
Commercial contract management can be a tedious process if you don’t conduct it properly. As mentioned before, these sales agreements typically involve a large amount of money and should be handled with caution to avoid significant legal and financial liabilities. One of the best tools to speed up the management process is to create a checklist for each stage. That way, you can ensure that no critical information is missing from the finalized document.
A commercial contract structure should include:
- The parties or companies involved in the partnership.
- The duration of the agreement and whether it’s time, project, or relationship-based.
- Circumstances that are grounds for terminating the agreement.
- The purpose of the business arrangement.
- Definitions to clarify the grounds of the agreement.
- Contractual terms and conditions.
- Representations, warranties, and indemnification.
- Remedies and dispute resolution provisions.
Negotiating & drafting checklist
When negotiating or creating a commercial contract draft, here are some common issues that you should consider:
- Does the contract identify each party’s obligations?
- Is a failure to meet these obligations grounds to terminate the deal?
- Does the document include what happens if one side misses a deadline?
- Should the performing party have insurance policies that are connected with the work that they’re undertaking?
- Are appropriate indemnities in place if a third party makes claims in connection with the agreement?
- Should liability for breaching the terms be limited or excluded?
- Does the document contain detailed payment terms?
- Should you include specific procedures for dispute resolution?
- Is the commercial contract for a particular period, or does it apply indefinitely?
Commercial contract review checklist
The process of commercial contract review is critical as it ensures that you and your business partner both fully understand what the arrangement entails.
When reviewing the agreement, you should ensure that:
- The terms and conditions are satisfactory to both parties.
- The contractual terms and quantities are correct.
- Both sides understand the renewal terms.
- Risks of the agreement are allocated fairly.
- You are aware of important dates and deadlines.
- You and your partner both understand your obligations and the grounds for termination.
Why you should integrate commercial contract management software
If you want to go beyond creating checklists and streamline managing your commercial contracts, even more, you should consider integrating a commercial contract management software. This intelligent technology will automate every stage of your agreement lifecycles, from drafting to review, allowing you to close merchant deals as quickly as possible. Additionally, automation tools will help your business avoid risk and form partnerships that will benefit its growth.