John B. Noone, Jr., a CalSouthern Adjunct Faculty Mentor in the School of Business and Management, was recently featured in the National Contract Management Association (NCMA) Magazine for his article, “10 Seemingly Harmless Contract Clauses That Can Cost You — And How Organizations Can Mitigate the Negative Outcomes They Can Cause.”
He discusses ten ubiquitous contract clauses that often result in tremendous financial losses, especially if the contract is strictly enforced or if there is an incorrect result with litigation.
Continue on below to read the introduction of the article or explore the article in full, here.
“While they may seem harmless, some ‘standard’ clauses can, in fact, cause unjust and inequitable outcomes for contracting parties.
One of the many duties contract managers regularly perform is to conduct a review of clauses (or terms and conditions) for a draft version of a contract.
To properly complete this task, one must exercise a degree of meticulousness, possess a certain level of expertise, and have an awareness that goes beyond merely reading the words in a document to knowing the hidden ramifications of the terms and conditions that will be in the contract.
When a thorough analysis is performed before a contract becomes enforceable, there are two major benefits:
First, when a determination is made in advance as to what terms and conditions in a draft contract are problematic or unacceptable, the organization’s potential liability can be reduced, or even eliminated completely, because the assessment was made early in the contract life cycle; and
Second, when the advantages, disadvantages, and potential risks are known prior to signing a contract and while performance is occurring, the chances of the organization encountering a surprise and incurring unforeseeable financial losses is lessened because the possibility of negative outcomes occurring can be anticipated.
When a party to a contract submits the draft version of a contract to the other side to review and approve, there are often standard clauses that appear to be normal and routine. Such clauses can appear as boilerplate sentences in a government or commercial contract, and can involve a transaction for services, the sale of goods, or a hybrid of those two types of contracts. Such clauses may seem to be common and necessary—perhaps perceived by management and even in-house counsel as routine and standard for a contract, or logical, reasonable, and thus proper to the contract manager.
However — while they may seem harmless, some “standard” clauses can, in fact, be detrimental. The fact that such clauses, despite their flaws, consistently reappear in both the draft and final versions of contracts demonstrates that contracting parties in many industries are aware of at least the existence of these clauses, and even believe them to be acceptable. When individuals do not recognize the contract clauses that are detrimental to their respective organizations, then parties to a contract are unwittingly creating their own difficulties by agreeing with terms and conditions that can cause unjust and inequitable outcomes that will have negative impacts for their organizations.
John B. Noone, Jr. is a valued Faculty Mentor for the School of Business and Management and part of CalSouthern’s unique one-on-one mentorship program.
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