Beyond the Boilerplate: The Art of Customization in Drafting Business Contracts

When drafting any type of business contract, customization is key. The terms of the contract should clearly and specifically reflect the terms of the deal, and they should thoroughly address the risks involved. Anything less can leave both parties exposed, and any ambiguities or oversights can make a contentious dispute almost inevitable.

Customizing a business contract involves much more than specifying pricing, timing and expectations. With that said, this is generally a good starting point. Once the parties have outlined the substantive terms of their deal in writing, then they can focus on customizing the more boilerplate-type terms to reflect the substance of their agreement.

7 Examples of Key Business Contract Terms That Require Customization

What does customizing a business contract entail? We view customizing our clients’ business contracts as an art. While it requires an in-depth understanding of the relevant techniques and fundamental underlying principles, it also requires the ability to think outside of the box and create something that is truly unique. If a business contract isn’t truly unique, it won’t fully serve its intended purpose—and, in the long run, this can lead to a dispute that could (and should) have been avoided.

To illustrate the importance of business contract customization, here are seven examples of key terms that need to be custom-tailored to the terms of the parties’ deal:

1. Representations and Warranties

Representations and warranties are key terms for ensuring that both parties know what they can expect as they move forward. They can also play a critical role in the event of a dispute down the line.

All representations and warranties in a business contract should be drafted to reflect the parties’ respective responsibilities, financial standing and other pertinent factors. Generic representations and warranties tend to be so broad that they are virtually meaningless; or, in the alternative, sometimes their breadth can create exposure that is unwarranted.

Parties that are making representations and warranties will want to ensure that these terms are narrowly tailored, while those seeking assurances will want to ensure that they have all of the assurances they need to feel comfortable with the level of risk they are assuming. If a business contract’s representations and warranties are not custom-tailored, they will not fully serve the interests of either party.

2. Default and Termination

When does contractual noncompliance constitute a default that warrants termination? When a default warrants termination, does the defaulting party have an opportunity to cure? If so, for how long? Are there any exceptions? What are the parties’ respective rights and obligations post-termination?

These are just a handful of numerous questions that require careful consideration when negotiating any type of business contract. If it isn’t clear when a contract is subject to termination—or if a party doesn’t have the right to terminate when necessary—this is another critical issue that can have serious ramifications.

3. Indemnification

Indemnification clauses are common boilerplate terms in commercial contracts. In fact, they are so common that many business owners and executives don’t give them a second thought.

But, this can prove to be a very costly mistake. Indemnification clauses shift liability from one party to another. They address liabilities arising out of third-party claims, which can range from intellectual property (IP) infringement claims to personal injury and wrongful death claims. If a party fails to secure adequate indemnification rights—or if a party assumes an indemnification obligation that it shouldn’t—this can create substantial risk exposure that could (and should) have been avoided.

4. Insurance Coverage

Mandatory insurance coverage clauses serve an essential risk-mitigation function in many business contracts as well. Here too, both parties need to ensure that they are giving due consideration to the specific circumstances of their deal. If a party commits to securing insurance coverage that it isn’t able to obtain, this can have serious consequences for both parties. Conversely, if a party fails to ensure that its counterparty has adequate insurance coverage available, this can significantly impair the party’s ability to protect its financial interests when necessary.

5. Mandatory Alternative Dispute Resolution (ADR)

While mandatory alternative dispute resolution (ADR) clauses may seem fairly standard, these boilerplate terms also require extensive customization. For example, one important consideration that often goes overlooked is the need for exceptions to a contract’s default ADR requirements. In particular, in the event that a party needs to seek emergency injunctive relief, it is imperative that it has the ability to do so in court. The specific exceptions that are necessary will depend on the nature (and other terms) of the party’s deal.

6. Jurisdiction, Venue and Governing Law

Jurisdiction, venue and governing law clauses can all play central roles in determining the viability of pursuing legal action in the event of a dispute. While the party with superior bargaining power will often seek to impose its preferred choices, this should not be a foregone conclusion. As with all of the other clauses we’ve discussed, there are various legal, practical and strategic considerations involved in deciding what makes the most sense within the context of any particular business relationship or transaction.

7. Remedies

Finally, when negotiating business contracts, it is imperative that both parties give due consideration to the remedies that will be available in the event of a dispute. It will make sense to provide for liquidated damages or other specific remedies in many cases. But, damages caps and other similar types of provisions can make more or less sense in different circumstances as well; and, here too, informed and forward-thinking decision-making is critical.

Speak with an Experienced Business Contract Attorney at Rendigs

Our attorneys assist businesses of all sizes and in all industries with drafting and negotiating custom-tailored contracts. If you have questions about your business’s contract needs, we invite you to get in touch. To speak with an experienced business contract attorney at Rendigs in confidence, give us a call at 513-381-9200 or tell us how we can help online today.