This post is about Balancing contract terms, and it will be a quick and easy read. I mean, it mostly includes bullet points. But I’d thought you would appreciate, as these are valuable points, and it doesn’t have to be much more complicated than this -although each situation can be different, of course and your own situation may need a little bit of tweaking.

As a supplier of products or services, you may be signing your customers’ contracts without legal support. After all, most small and medium size companies cannot afford in-house legal counsel and don’t want to rely on expensive law firms to do the legal work.

But, know that those seemingly standard customer terms could be putting your entire business at risk. Whether you’re a manufacturer, distributor, or service provider, it’s important to understand what’s hidden in those contracts that may be crucial for your company’s survival.

Start balancing contract terms. At We Draft Contracts, we’ve successfully drafted and negotiated hundreds of contracts for suppliers like you.

Here are 10 problematic terms we regularly encounter in customer contracts, along with better approaches.

And again, I’ll keep it short, I promise.

1. Liability

A. Typically seen when you’re the supplier:

• Unlimited liability for all damages
• Full responsibility for customer’s business losses

B. Better approach:

• Cap liability at 1-2 times annual contract value
• Exclude indirect damages and consequential losses

2. Termination Rights

A. Typically seen:

• Customer can terminate for convenience
• Long notice periods when you want to terminate

B. Better approach:

• Mutual termination rights with equal notice periods
• Clear triggers for termination with cure periods
• Compensation at termination for convenience

3. Indemnification (Promise to compensate other party for damages they might face)

A. Typically seen:

• Broad supplier indemnities for any customer losses
• Uncapped indemnities without time limits

B. Better approach:

• Limit indemnities to specific risks within your control
• Link indemnification obligations to overall liability cap
• Indemnify not for any act or omission but negligence

4. Automatic Renewal

A. Typically seen:

• Supplier must give 6-12 months notice to prevent renewal
• Long renewal periods (i.e. 2-5 years)

B. Better approach:

• Equal notice periods for both parties (e.g., 90 days)
• Renewal periods of 1 year

5. Price Changes

A. Typically seen:

• No right to increase prices
• Customer approval required for any change

B. Better approach:

• Regular price review mechanisms (i.e. CPI index)
• Automatic adjustment for cost increases

6. Quality Standards

A. Typically seen:

• Undefined “highest industry standards”
• Subjective customer satisfaction requirements

B. Better approach:

• Specific, measurable quality criteria
• Objective testing and acceptance procedures

7. Intellectual Property

A. Typically seen:

• All IP transfers to customer
• Customer owns improvements to your products

B. Better approach:

• Retain ownership of core IP and background knowledge
• Limited license for customer’s intended use

8. Confidentiality

A. Typically seen:

• One-sided protection of customer information
• Unlimited confidentiality obligations

B. Better approach:

• Mutual confidentiality obligations
• Reasonable time limits and clear exceptions

9. Force Majeure

A. Typically seen:

• Limited protection for supplier disruptions (i.e. material shortage)
• Customer can terminate if you have delays (i.e. if FM lasts longer than 30 days)

B. Better approach:

• Balanced force majeure protection with list of FM examples
• Reasonable time to resolve issues (with termination after 90 days)

10. Warranty

A. Typically seen:

• Unreasonably long warranty periods
• No conditions or exclusions

B. Better approach:

• Clear warranty scope and duration
• Conditions included before being able to rely on a warranty (i.e. maintenance carried out)
• Exclusions included (i.e. wear and tear, consumables, etc.)

How we helped a food company recently

Balancing contract terms is important. Recently, we helped a food production company renegotiate their contract with a major customer. The original contract exposed our client to significant risks, including unlimited liability and unclear ownership of recipes. Through careful negotiation, we secured significantly better terms:

• liability was capped at one times the annual contract value
• consequential damages were excluded
• Our client retained exclusive ownership of their recipes
• A balanced force majeure was included, and
• product recall procedures were clearly defined with balanced obligations.

These improvements not only reduced risk but also protected our client’s intellectual property and know-how.

Our advice to you: Don’t wait until it’s too late.

Your customers may present their contracts as “standard” or “non-negotiable,” but protecting your business is too important to accept unfair terms. With proper legal support, most terms are negotiable, and We Draft Contracts can help you start balancing contract terms.

Want to learn more about protecting your business from risky contract terms?

Contact We Draft Contracts for a consultation. We’ll help you identify risks and negotiate better terms that work for all parties.

The goal isn’t to create adversarial relationships with your business partners. Instead, it’s about establishing clear, balanced agreements that foster long-term success. Let us help you get there.