I hope that you have enjoyed the article A Buyer’s 11-Point Contract Review Checklist.
Personally, I recommend that you never review a contract without a checklist like this.
Well, some terms of a contract can look harmless. And the terms that you are reading on the 20th, 30th, and later pages seem to look even more harmless as your eyes grow weary from reading all of those cryptic phrases like “notwithstanding the foregoing” and “hereinafter referred to as.”
But in those pages lurks risk.
For example, think about the 4th point in the checklist: “Make sure that the warranty clause specifies the applicable remedy or remedies for failure and includes the time frame in which each remedy is required.”
Let’s say that you are contracting for certain batches of items. These items are critical to your organization’s continuing operations for one reason or another. The warranty clause says that the remedy for shipping a defective batch of items is a replacement of the items.
Sounds fair enough, right?
If you’ve been in procurement long enough, you’ve probably authorized many purchases where this type of clause applied during your career.
But, later, a defective batch of items arrives from the supplier. You know you have a warranty in your contract and there is a remedy for receiving defective items. You call the supplier. The supplier tells you that the next batch of items are currently in production. They will ship you a replacement batch when production is complete in about three months. You hang up.
Three months? That’s too long!
You call the supplier back, demanding that they replace the batch immediately! But those items can’t be made with magic. They have to be manufactured and that takes time.
What good is that warranty clause going to do for you?
Your recourse for this supplier screw-up will depend on what the rest of your contract says. But it is possible that you will really have no recourse other than waiting for the replacement batch. No liquidated damages. No cover damages. No nothing.
Sure, you could have caught that weakness in the contract yourself without a checklist. But there’s a good chance you may not have. So, now that you have a checklist, you should use it every time you review a contract.
There’s too much risk not to.