Contracts

Contract review & negotiation

3min

⚡TL;DR
Always carefully review an agreement and seek help if you do not fully understand it. 
Check out at least the imposed obligations, the liability, the termination notices, and the warranties given by both parties. 
Do not be afraid to redline a contract coming from a counterparty, even if it's a big potential client. 
Book a free call with us.  
Reviewing a contract is the act of checking a contract that was not drafted by yourself or your lawyers and determining whether it can be accepted as such or if some amendments must be suggested.
You should always carefully review an agreement before signing it, and seek help if you're not 100% confident in understanding its content. 
Variable
Content
Type of contract 
Qualifying a contract means putting it in a category corresponding to the law. It is relevant to know which mandatory rules apply. 
Key obligations 
A contract lists the obligations of the parties. Be aware that it might be done expressly (e.g., in a section called "Seller's obligations") or in various parts of the contracts (e.g., by using the verb "shall", such as the Seller shall provide the car). 
Liability 
Is it limited? If yes, for which parties? And in what extent? 
Keep in mind that under Swiss law, liability cannot be entirely limited (see Limitation of liability﻿) 
Indemnity
Indemnity clauses create an obligation for the indemnifying party to pay the other parties' costs if some conditions are fulfilled. This is often the case if the representations and warranties are violated. 
For example, if a software developer warrants that the IP won't violate third parties' IP rights, and a third party sues the client of the software developer, the software developer might have to pay the client's attorney costs to fight back.
Non-compete 
A non-compete clause prevents one or both parties from working with the other company's competitors.
 For example, that might be the case for a company entering into a software development agreement that wants to avoid the same software development company working with its competitors. 
Key elements to look for are the scope and the duration of the non-compete. 
Non-solicitation 
A non-solicitation clause prevents one party from working with the other party's clients. 
For example, a company that has a service agreement with a service provider to deliver some advisory services to their clients wants to avoid that the service provider can "steal" the clients and provide services directly to them. 
Key elements to look for are the scope and the duration of the non-solicitation.  
Term 
The term is the duration of the contract. Check whether there's a fixed term (either in duration in months/year or related to reaching the end of the project) or if it is open-ended. 
Termination
In relation to the term, the termination clause states whether the parties can terminate before the term, and if yes, with which notice. A common clause is for the parties to be able to terminate for convenience with a given notice and at any time immediately for cause. 
The definition of a termination for cause is rather vague and depends on the type of contracts and the circumstances. We advise to discuss with your lawyer whether you can terminate, feel free to book a free call here to discuss. 
Representations & Warranties 
Representations are "true statements" at a given point in time. For example, the seller might represent that they are authorized to sell the object.
Warranties are future-facing. For example, a software licensor might warrant that the software does and will not violate third-party IP rights. 

Review representations and warranties carefully, there's often an indemnity clause linked to the violation of the representations and warranties. 
Amendments
Some contracts add a unilateral right for a party to amend some elements of the contracts. This is often the case in terms and conditions and might even affect the pricing. Check that and ideally negotiate that amendments require the agreement of both parties. 
Applicable law 
The Applicable law & jurisdiction﻿ plays a role in the interpretation of the agreement in the event of a dispute. 
Best practices
Limits: The person in charge of the negotiation must be aware of what can and cannot be accepted from a product and business perspective (e.g., extent of liability, SLA, discounts, etc.).  
Defined terms: The definitions must be carefully reviewed.  
Depending on your review, you might have to suggest significant changes; this will lead to a contract negotiation. 
The standard timeline of a contract negotiation is the following: 
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When negotiating with corporate: 
Figure out what negotiation power the other party has. ​
Decide how much time do you want to spend on negotiations. 
Know the red lines of the counterparty​ and what they will not accept.  
Do not be afraid to set your own red lines, esp. on:​
Wrong service descriptions (often, the other party uses standard templates, which leads to wrong services description)​. 
Intellectual property​
Liability, warranty, penalty​
SLA
Check out our contract review package and book a free call with us
Best practices
Checklists: To ensure efficient contract review and negotiation, an internal process (e.g., checklist for each type of contract) is in place, and/or a legal partner is hired for the tasks. 
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Variable	Content
Type of contract	Qualifying a contract means putting it in a category corresponding to the law. It is relevant to know which mandatory rules apply.
Key obligations	A contract lists the obligations of the parties. Be aware that it might be done expressly (e.g., in a section called "Seller's obligations") or in various parts of the contracts (e.g., by using the verb "shall", such as the Seller shall provide the car).
Liability	Is it limited? If yes, for which parties? And in what extent? Keep in mind that under Swiss law, liability cannot be entirely limited (see Limitation of liability)
Indemnity	Indemnity clauses create an obligation for the indemnifying party to pay the other parties' costs if some conditions are fulfilled. This is often the case if the representations and warranties are violated. For example, if a software developer warrants that the IP won't violate third parties' IP rights, and a third party sues the client of the software developer, the software developer might have to pay the client's attorney costs to fight back.
Non-compete	A non-compete clause prevents one or both parties from working with the other company's competitors. For example, that might be the case for a company entering into a software development agreement that wants to avoid the same software development company working with its competitors. Key elements to look for are the scope and the duration of the non-compete.
Non-solicitation	A non-solicitation clause prevents one party from working with the other party's clients. For example, a company that has a service agreement with a service provider to deliver some advisory services to their clients wants to avoid that the service provider can "steal" the clients and provide services directly to them. Key elements to look for are the scope and the duration of the non-solicitation.
Term	The term is the duration of the contract. Check whether there's a fixed term (either in duration in months/year or related to reaching the end of the project) or if it is open-ended.
Termination	In relation to the term, the termination clause states whether the parties can terminate before the term, and if yes, with which notice. A common clause is for the parties to be able to terminate for convenience with a given notice and at any time immediately for cause. The definition of a termination for cause is rather vague and depends on the type of contracts and the circumstances. We advise to discuss with your lawyer whether you can terminate, feel free to book a free call here to discuss.
Representations & Warranties	Representations are "true statements" at a given point in time. For example, the seller might represent that they are authorized to sell the object. Warranties are future-facing. For example, a software licensor might warrant that the software does and will not violate third-party IP rights. Review representations and warranties carefully, there's often an indemnity clause linked to the violation of the representations and warranties.
Amendments	Some contracts add a unilateral right for a party to amend some elements of the contracts. This is often the case in terms and conditions and might even affect the pricing. Check that and ideally negotiate that amendments require the agreement of both parties.
Applicable law	The Applicable law & jurisdiction plays a role in the interpretation of the agreement in the event of a dispute.

Updated 29 Oct 2024

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Contract review & negotiation

⚡TL;DR

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Best practices