Comprehensive Legal Solutions, Personalized Guidance

9 red flags to watch for when reviewing business contracts

On Behalf of | Mar 22, 2024 | Business Law

Before signing any business contract, you should carefully review the terms and conditions. One reason is to ensure the contract aligns with your interests and objectives.

You may encounter a few red flags while reviewing.

1. Unclear or ambiguous language

Maryland is home to about 618,214 small businesses, while Washington, D.C. has 75,579. Contracts involving these businesses should be in clear, straightforward language that is easy to understand. Beware of contracts filled with complex jargon or ambiguous terms. They could lead to misunderstandings or disputes down the line.

2. Vague responsibilities and obligations

Ensure that the contract clearly outlines the responsibilities and obligations of each party. Watch out for vague language that leaves room for interpretation or potential loopholes.

3. One-sided terms

Be wary of contracts that heavily favor one party over the other. Look out for clauses that disproportionately benefit the other party or place undue burdens on your business.

4. Hidden fees or costs

Carefully review the financial terms of the contract to ensure there are no hidden fees or costs buried in the fine print. Pay close attention to provisions related to payment schedules, penalties or additional charges.

5. Lack of termination clause

A termination clause outlines the conditions under which either party can end the contract. If a contract lacks a clear termination clause or makes it difficult to terminate the agreement, it could leave your business trapped in an unfavorable situation.

6. Inadequate scope of work

Ensure that the contract clearly defines the scope of work that one party or the parties will perform. Watch out for contracts that are too vague or that fail to specify important details such as project timelines, deliverables and quality standards.

7. Excessive liability and indemnification

Be cautious of contracts that impose excessive liability or indemnification requirements on your business. Make sure you understand the extent of your potential financial and legal obligations in the event of disputes or claims.

8. Lack of confidentiality or nondisclosure agreements

If the contract involves sensitive information or proprietary data, make sure it includes adequate provisions for confidentiality or nondisclosure. Failure to protect confidential information could jeopardize your business’s competitive advantage.

9. Inconsistent or contradictory terms

Check for inconsistencies or contradictions that could create confusion or conflicts. Make sure all terms and conditions align and are mutually enforceable.

By addressing red flags proactively, you can improve the chances of mutual success.