An Overview of Contract Clause Types and Effective Clause Management

Topics: Contract Management System, Contract Lifecycle Management, clauses, Clause, Clause Library, Contract Clause, Contract Clause Library

Written by Lindsey Paulk

Every business utilizes contracts to partner with customers and vendors, as well as when hiring employees. However, you might be wondering what all goes into a contract. In this blog, we will discuss some of the clauses that you will commonly find within a contract, and we will also discuss how to properly manage your contract clauses throughout contract lifecycles. Managing clauses can be difficult for any contract administrator or legal professional, so learning more about these processes can help you effectively oversee your clauses. And with disconnected processes like spreadsheets, shared drives, and emails, clause management can become that much more taxing.

With proper clause management, you can generate compliant and standardized legal agreements with your preapproved contract clauses to efficiently and effectively speed-up your approvals and drafting. Your contract clauses will enhance your organizational policies and mitigate risks when properly implemented, and this can lead to numerous positive impacts in your contracting strategy. Now let's go ahead and discuss how you can master your organization’s contract clauses.

6 Common Contract Clause Types

An Introduction to Contract Clauses

The concept of a contract clause is relatively simple. In general, a clause is a predefined and preapproved piece of text that can be selected and inserted into your contracts and supporting documentation by your contract management team. With effective clause management and proper clause development, you can save time, reduce human error, and mitigate risk when authoring your legal agreements and contracts. Standardized clauses and centralized clause management will help you create accurate contracts and will inevitably help you increase compliance.

In every business in every industry, you will find contracts. And within contracts, you will find clauses. There are several contracts clause types that you will likely find in nearly every contract. Let's discuss them in a bit more detail below.

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Common Contract Clause Types

Confidentiality

For two or more parties to successfully enter into a contract, there will need to be a comprehensive approach to the communication in order for each party to properly understand and carry out contractual obligations. Contracts must contain a detailed confidentiality clause that describes necessary information regarding each parties contracted terms. A confidentiality clause ensures that parties refrain from sharing any confidential information that is communicated during a transaction. This is especially critical when concerning intellectual property.

Force Majeure

A force majeure clause is included in commercial contracts to safeguard contractual parties from uncontrollable circumstances that could impact the contract. In the case of a natural disaster, certain contractual obligations might not be able to be upheld. In essence, this clause helps to ensure that the failure to carry out your contract is because of an unforeseeable circumstance beyond your control, rather than a breach of contract.

Damages

Contract breaches can result in significant, negative impacts for any organization. Because contract breaches tend to occur more often than you might think, it’s key to include a clause pertaining to damages. Liquidated damages clauses are often found in commercial contracts, and they typically discuss a predetermined amount of money owed if one party does not uphold their contract. Depending upon the nature of the breach and size of its impact, a court might award additional damages.

Jurisdiction

Location, location, location. In today’s day and age, business transactions are often conducted digitally so that organizations can capitalize upon potential opportunities that exist miles away. Completing transactions that cross borders is a common occurrence, both domestically and internationally. If contractual parties are located among several states or countries, it's necessary to clarify which state’s or country’s laws will govern the legal agreement. In this manner, commercial contracts must provide details regarding which state holds jurisdiction so that it is clearly understood which laws apply to the agreement.

Termination

A termination clause is important for businesses who wish to end a contract when it is not performing as initially perceived. By including a termination clause in a contract, you can clearly detail and inform which circumstances allow for either one party or both parties to terminate the contract no matter how much time is left within the agreement.

Dispute Resolution

No matter how much time and effort you put into drafting your contracts, you'll experience conflict at some point. It's important to describe what dispute resolution will look like in action for the contractual parties if an issue were to occur. In the majority of today's contracts, firms will often include an arbitration clause that contractual parties must follow as opposed to going the litigation route. This can be a faster and more cost-efficient way to find a solution to contract issues.

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The Pain Points of Poor Clause Management

Poor clause management is a major pitfall found in the contract management strategy of many companies today. Failure to properly manage your company’s clauses can lead to inaccuracies in your contracts, low compliance, increased risk, delays, and slow contract execution. By taking control of your contract clauses, you can greatly increase the quality of your contract lifecycle management and speed up your contract review, approval, and execution.

By centralizing your contract lifecycle management, you can use integrated tools and capabilities to collaborate and communicate on your contracts. Digital contract lifecycle management allows you to increase the speed of contract authoring and lifecycles, boost transparency, enhance collaboration, improve security, raise compliance, mitigate risk, and close more deals – faster.

Contract lifecycle management (CLM) software can help you edit and track various versions of your documents so that you can ensure you are working on and with the right clauses at the right times. Poor version control can cause you to develop different clauses unnecessarily and store them in a variety of places, which can lead to a lack of compliance and annoying delays when drafts need to be reviewed by your legal department. A user-friendly library of compliant, preapproved contract clauses will seriously help you during several stages of contract lifecycle management.

Gain Results With Simplified Clause Management

Manage your clauses better than ever with Dock 365. Draft and build contracts and legal agreements effortlessly with your library of contract templates and preapproved contract clauses with the Dock 365 Contract Management System. Our solution is equipped with several advanced contract authoring features including:

  • Contract data fields that merge with your company’s contract templates
  • Flexible and customizable automated contract workflows
  • Automated task reminders and alerts
  • Field and clause merging to simplify contract drafting
  • Version tracking capabilities with timestamped histories
  • Counterparty collaboration features
  • Electronic signature integrations to speed-up approvals and contract execution

Easy ways for companies to make contract management easy

Conclusion

Contract clause management is often an overlooked concept in contract lifecycle management. We highly recommend leveraging a software solution that allows you to oversee all of your company’s clauses so that you can increase compliance, productivity, and efficiency throughout the course of your contract lifecycles. With new knowledge of contract clauses, various clause types, and how contract lifecycle management software can help, we hope you feel empowered to take action to optimize your contracting systems.

Dock offers an affordable and user-friendly approach to contract management that leverages your existing Microsoft 365 infrastructure. If you're in the market for a dedicated contract lifecycle management software solution, reach out and we would love to assist you with a complimentary demo of our solution.

Learn more about our Dock 365 Contract Management System here.

Learn more about Contract Lifecyle Management (CLM) Software here.

For more information, we welcome you to schedule a free demo with us today.

 

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