The 3 Most Important "Missing" Contract Terms

If your contract is missing the terms below, you are exposing your company to significant risk.

Limitation of liability. Not putting in place a limitation of liability could break your company (for instance, in the event your workers cause an uninsured loss with significant revenue impacts). Ideally, there should be a hard cap on the total dollars for which your company may be liable. At the very least, there should be a limitation on "consequential damages" - the most likely type of damages to go into six or seven figures.

Protection of intellectual property.  Give your customers the products and services they are paying for – but do not give away the tools in your tool box. The contract should clearly distinguish between work product developed for the customer versus your pre-existing intellectual property. You should also clearly define the parties' rights in connection with each type of intellectual property.

Fair indemnification. Indemnification is an agreement to protect someone else against the claims of third parties. While indemnification typically cannot be avoided, each party should be responsible for third-party losses only to the extent that such losses are caused by its fault and negligence. If the other side refuses to reimburse your company for losses caused by its own fault or negligence, your alarm bell should be sounding.