Introduction

Most companies enter into contracts on a regular basis for, inter alia, service level agreements, property or equipment leases, advertising agreements, production agreements etc.  Some of these contracts are simple and easily understandable while others are completely incomprehensible.  As a result, it is very easy for a party to glance over a contract without understanding what their obligated to do.  It is therefore important to ensure that whether you are entering into a simple contract or a complex contract, that you completely understand the terms and conditions contained therein.  Below, you will find a simple contract checklist which provides a list of general provisions which you should consider each time you enter into a contract with a party.

Checklist

CLAUSEBRIEF DESCRIPTION / EXPLANATIONYESNO
IntroductionIt’s always good to insert a brief summary / synopsis detailing the basis of the contract.
The partiesCorrectly identify each party to the contract and where applicable, use names as registered on the Companies and Intellectual Property Commission (“CIPC”).
Use complete names (whether you are dealing with an individual or a business) to avoid confusion. In addition, it is advisable to insert their registration number or their identity number, as well as their physical address.
DefinitionsEvery good contract should have a definitions section wherein terms or abbreviations are elaborated upon in order to make the contract easy to read. You may also insert abbreviations/acronyms under this section.
Negotiate the terms and double check themWhether you are drafting the contract or you are presented with a contract, this is the starting point.
Parties can negotiate the terms of nearly every contract but each party is generally looking to protect its own interests first . Should you require something to be inserted in the contract then ask for it – the worst that can happen is the other party might say “no”.
Ensure that you double check all the business terms (ie price, duration, description of services, payment, obligations, dates, deadlines etc. – if these appear in Annexures, the Annexures must be thoroughly checked as well).
Duration and renewalAlways stipulate what the duration of the contract will be.
It is not advisable to have a “never-ending” contract, as this will be very hard to get out of. Most contracts run for a minimum period of 12 (twelve) months and can go for as long as 3 (three) to 5 (five) years or more. This is dependent on the nature of the business between the parties.
Perhaps insert a renewal clause at the end of the initial term of the contract, as well as each renewal period wherein you should stipulate the correct notice period for any renewal. Remember when electing to renew a contract, the parties must determine whether the renewal will be based on the same terms as the original contract or they will be amended. Any changes must be agreed to in writing by both parties .
ServicesClearly detail the services to be offered in relation to a contract.
Where services are complex, it may be necessary to refer to them in a detailed annexure to be attached to a contract.
PaymentEnsure that the payment terms are accurate.
Will they be dependent on a milestone or on the production of valid tax invoice? Will they be subject to value added tax? In the event of late payment, what will the penalty be? How will payment be made – via EFT or in cash?
Rights and responsibilities (obligations)Ensure that you know your rights and responsibilities under each contract.
Do not assume that this means “pay attention to the obligations clause” , as rights and responsibilities are typically scattered throughout the contract.
Harmless and indemnification provisionsWhen you agree to hold a party harmless, you agree to hold them not responsible for any liability that may arise out of a transaction. When you indemnify a party, you are agreeing to protect him from liability or loss that may arise out of a transaction.
In the event that you indemnify a party, limit the indemnification as much as possible and negotiate the same indemnification for yourself. Perhaps limit the indemnification to a certain value. Eg the total value of the transaction.
Risk allocationDetermine how risk will be allocated to each party.
Risk is usually borne by the party in the best position to mitigate loss.
It may be important (depending on the value of the contract) to check whether any insurance requirements may need to be inserted. (PLEASE NOTE: This may need to be budgeted for.)
ConfidentialityEnsure that all negotiations, documentation, discussions and the contract itself remain confidential.
List the types of information that will be considered confidential.
List any exceptions wherein confidential information may be revealed to third parties.
Intellectual propertyDetermine whether there is intellectual property capable of ownership by either party to the contract.
Who will the ownership pass to? When and how will the ownership pass – on payment, once produced, upon delivery etc?
Will ownership of intellectual property be worldwide and in perpetuity?
Incorporation of other documentsSome contracts may refer to other documents. It may therefore be important to attach these documents for ease of reference.
Do not assume that you know what the attached document contains. Always read the attached documents along with the main contract.
Force majeureThis clause essentially releases a party from contractual obligation in the event of, inter alia : war, industrial action, natural disaster etc.
Insert time periods for the notification of a force majeure event, as well as the declaration by both parties to cancel the contract.
Breach and defaultDetermine what acts constitute events of breach or default of a contract.
In addition, insert provisions detailing how such acts may be remedied and the consequences of failing to remedy an act of breach or default.
Dispute resolutionDetermine how disputes will be resolved. This may be through mediation, arbitration or even court processes.
Mediation / arbitration may be cheaper than court; however, it is important to give yourself some flexibility in this regard and provide a resolution suitable to your budget.
TerminationInsert causes for termination. Eg breach of a material term, liquidation etc.
Consider ways to terminate the contract if it is not working to your benefit.
NoticesInsert each party’s domicilium citandi et executandi for the purposes of serving notices.
With today’s technology, we suggest ensuring that a notice be served in more than one manner ie post, email, and facsimile with specific time periods attached to each form of delivery wherein the other side is deemed to have received a notice.
Warranties and representationsUnderstand the warranties and representations given by you and the other party. Do not give false warranties or representations.
Try limiting your warranties as much as possible, so as not to place onerous obligations on yourself.
SeverabilityEnsure that you make provision for the removal of any illegal or unenforceable provisions in a contract.
This will ensure that the remaining provisions of the contract are still valid with full force and effect.
Waiver of remediesShould the parties elect to provide each other certain indulgences, they should not individually be prejudiced or restricted from enforcing their individual rights as per the contract.
AssignmentAssignment of a contract to a third party should only be granted where the prior written consent of the other party has been granted.
Entire agreementThe parties must declare that the final contract supersedes prior agreements and understandings between them.
Any amendments, variations and modifications to a contract must be agreed to by both parties in writing.
Applicable law and jurisdictionMake reference to applicable law and jurisdiction. Eg South African law, High Court of South Africa, Gauteng Local Division, Johannesburg.
Complete all the blanksEnsure that all blank spaces are completed.
In the event that you need to make any changes / deletions where the content is incorrect, be sure to initial each change or deletion.
ExecutionEnsure that the parties to a contract have the authorised representatives signing the contract indicate the place where it was signed, as well as the date. In addition, each page of the contract (except for the signature page) should be initialled.
It is also prudent to ensure that witnesses are present to verify the signature of the authorised representative.

Conclusion

The foregoing is a general list of clauses that you should consider when entering into a contract.  The type of transaction will usually dictate the actual terms required to finalise a contract.  Should you take the time to thoroughly review and negotiate each clause in a contract before it signs, it will be better protected in the long run.  In the event that you are unsure of any contract or even a particular clause in such contract, you may approach an attorney to further elaborate on the clause in order to protect your best interests.