Contract Pilot

Tag: Contract Clauses

  • The 5 Contract Clauses That Cost Small Businesses the Most Money

    You signed a “standard” contract. Eighteen months later, it cost you $240,000. Here are the five clauses that keep doing this to small businesses — and how to spot them before you sign.

    Why Small Businesses Keep Getting Burned

    Here’s something lawyers know that business owners don’t: there’s no such thing as a “standard” contract. When someone hands you an agreement and says “it’s our standard template,” what they’re really saying is “this is the version that’s most favorable to us, and we’re hoping you won’t negotiate.”

    Most small business owners sign contracts the way they accept terms of service — scroll to the bottom, sign, move on. The clauses that seem boring or boilerplate are often the ones that carry the most financial risk. They’re written in dense language precisely because the drafter doesn’t want you to focus on them.

    These are the five clauses that we see cause the most damage.

    1. The Auto-Renewal Trap

    What it looks like: “This Agreement shall automatically renew for successive one-year periods unless either party provides written notice of non-renewal at least ninety (90) days prior to the end of the then-current term.”

    Why it’s dangerous: You signed a one-year contract with a software vendor for $2,000/month. The service didn’t deliver what was promised. You decide not to renew. But you forgot about the 90-day notice requirement — or you sent notice at 85 days, not 90. You’re now locked in for another full year. That’s $24,000 for a service you don’t want.

    This isn’t hypothetical. Auto-renewal disputes are among the most common small business contract claims. The vendor knows you’ll probably miss the window. That’s the point.

    What to look for: Any contract with a renewal clause — check three things: Does it auto-renew or require affirmative renewal? What’s the notice period? And is “written notice” defined? (Some contracts require certified mail, which means your email doesn’t count.)

    What to negotiate: Push for 30-day notice instead of 90. Better yet, push for affirmative renewal — meaning the contract expires unless both parties actively agree to continue. If auto-renewal stays, add a calendar reminder the day you sign.

    2. The Unlimited Indemnification Clause

    What it looks like: “Client shall indemnify, defend, and hold harmless Provider against any and all claims, damages, losses, costs, and expenses (including reasonable attorneys’ fees) arising from or related to Client’s use of the Services.”

    Why it’s dangerous: This clause says that if anyone sues the provider for anything related to your use of their service, you pay for everything — their lawyers, the settlement, the damages. Even if it’s their fault.

    Read that again. “Arising from or related to Client’s use” is extraordinarily broad. If their platform has a security breach and your customer data gets exposed, an argument can be made that the breach “arose from your use of the Services.” You’re indemnifying them for their own failures.

    A real-world example: A small e-commerce business signed a contract with a payment processor containing a broad indemnification clause. When the processor experienced a data breach that exposed customer credit card numbers, the processor’s lawyers sent a letter demanding the business cover a portion of the remediation costs — citing the indemnity clause. The business settled for $180,000 rather than fight.

    What to look for: The words “any and all” paired with “arising from or related to.” Also check whether indemnification is mutual (both parties indemnify each other) or one-sided (only you indemnify them).

    What to negotiate: Make it mutual. Add a negligence qualifier — you’ll indemnify for claims caused by your negligence or willful misconduct, not for “any and all claims.” Add a cap tied to fees paid.

    3. The IP Assignment Overreach

    What it looks like: “All work product, inventions, designs, code, documentation, and other materials created by Contractor in connection with this Agreement shall be the sole and exclusive property of Client.”

    Why it’s dangerous: “In connection with” is doing an enormous amount of work in that sentence. It doesn’t say “created specifically for the Client’s project.” It says “in connection with this Agreement.” If you’re a freelance developer and you build a reusable code library while working on a client project, this clause arguably transfers ownership of that library — your tool, built on your time — to the client.

    This happens constantly to freelancers, consultants, and agencies. You build something valuable, use part of it on a client project, and suddenly the client claims they own the whole thing.

    One design agency learned this the hard way when a client claimed ownership of the agency’s proprietary design system because components of it were used “in connection with” the client’s project. The agency had used the same system for dozens of clients. The resulting IP dispute cost over $60,000 in legal fees to resolve.

    What to look for: “Work product” definitions that go beyond the specific deliverables. The words “in connection with,” “arising from,” or “related to” the agreement — all of which are broader than “created specifically under.”

    What to negotiate: Define “work product” narrowly — list the specific deliverables. Add a pre-existing IP carve-out that explicitly states your tools, frameworks, and pre-existing materials remain yours. Grant the client a license to use your pre-existing IP as embedded in the deliverables, but retain ownership.

    4. The Termination-Without-Payment Clause

    What it looks like: “Client may terminate this Agreement for convenience upon thirty (30) days’ written notice. Upon termination, Provider shall deliver all completed work product. Client shall have no obligation to pay for incomplete deliverables.”

    Why it’s dangerous: You’re halfway through a $50,000 project. You’ve completed 60% of the work. The client’s priorities shift, and they terminate for convenience. Under this clause, they get everything you’ve completed — and they owe you nothing for the incomplete portion.

    But wait — how do you define “completed” vs. “incomplete”? If you’ve built the backend but haven’t started the frontend, is the backend “complete”? The ambiguity is the weapon. The client will argue that because the overall project is incomplete, they owe nothing. You’ll argue that discrete milestones were completed. Without clear language, you’re in a he-said-she-said that costs more to litigate than the money at stake.

    What to look for: Any termination-for-convenience clause. Then check: What are the payment obligations upon termination? Are they defined by milestone, by percentage of completion, or not at all?

    What to negotiate: Payment for all completed milestones plus a pro-rata payment for work in progress. A kill fee (typically 20-30% of remaining contract value) if the client terminates for convenience. At minimum, a clause stating “all work performed through the termination date shall be compensated at the rates specified in this Agreement.”

    5. The Non-Compete That Follows You Home

    What it looks like: “During the term of this Agreement and for a period of two (2) years following termination, Provider shall not directly or indirectly provide services to any business that competes with or is similar to Client’s business.”

    Why it’s dangerous: You’re a marketing consultant. You sign a contract with a SaaS company that includes this non-compete. The engagement lasts six months. For the next two years, you can’t work with any other SaaS company — because they’re all “similar to Client’s business.”

    “Directly or indirectly” makes it worse. Does referring a lead to a competitor count as “indirectly” providing services? Does advising a friend who works at a competitor count? The vagueness is intentional.

    The financial impact is devastating for small service businesses. A two-year non-compete in your core industry effectively bans you from earning a living in your area of expertise. One IT consultant estimated that a non-compete with a former client cost him approximately $300,000 in lost business over the restricted period — not because anyone sued, but because he turned down engagements to avoid the risk.

    What to look for: The scope, the geography, and the duration. Broad scope (“similar to”) plus unlimited geography (“anywhere”) plus long duration (two years) is a career-ending clause disguised as boilerplate.

    What to negotiate: Non-solicitation instead of non-compete — you won’t actively pursue their specific clients, but you can work in the industry. Narrow the scope to specific, named competitors, not an entire industry. Limit duration to six months. And check your state’s law — several states (California most notably, but increasingly others) limit or ban non-competes entirely.

    The Pattern You Should Notice

    All five of these clauses share something in common: they look boring. They’re buried in sections labeled “General Terms” or “Miscellaneous.” They use language that feels standard until you trace through the implications.

    The companies drafting these contracts are counting on you to skim. They know that “arising from or related to” looks like a formality. They know you’ll focus on the price and the scope and skip the termination clause. They know you won’t calendar the auto-renewal window.

    How to Protect Yourself

    You have three options:

    Option 1: Become a contract expert yourself. Read every clause, research the legal implications, check your jurisdiction’s rules. This works if you have unlimited time and enjoy legal research. Most business owners don’t.

    Option 2: Hire a lawyer for every contract. At $250-500/hour, a thorough contract review runs $500-2,000. If you sign ten contracts a year, that’s $5,000-20,000. Worth it for big deals, hard to justify for every vendor agreement.

    Option 3: Use AI that’s built for this. ContractPilot scans every contract you upload and flags exactly these kinds of clauses — auto-renewal traps, one-sided indemnity, IP overreach, termination gaps, and overbroad non-competes. You get a plain-English risk report in 90 seconds that tells you what to worry about and what to push back on.

    Your first three contracts are free. Upload the last contract you signed without a lawyer’s review. You might be surprised what you missed.

    Check Your Contract Free →

    ContractPilot AI catches the clauses you’d miss. Risk reports in 90 seconds. Plain English, not legalese. $49/month — less than what most businesses spend on a single hour of legal review.

  • How to Review a Contract in 10 Minutes (Without Missing Anything)

    A contract just landed in your inbox. Your client needs it reviewed by end of day. Here’s the exact framework experienced lawyers use to catch every risk — fast.

    The Problem With “Just Read It Carefully”

    You’ve been told the way to review a contract is to read it carefully, top to bottom, and flag anything that looks off. That works when you have two hours and one contract. It doesn’t work when you have seven contracts, a hearing at 2 PM, and a client who needed the redline yesterday.

    The truth is, experienced contract lawyers don’t read contracts linearly. They use a systematic framework — a mental checklist that focuses attention on where risk actually hides. Once you know the framework, you can review most standard commercial contracts in under 10 minutes and know exactly where to push back.

    Here’s how.

    The 10-Minute Contract Review Framework

    Minutes 1-2: The Identity Check

    Before you read a single clause, answer four questions:

    Who are the parties — really? Check that the legal entities are correct. A contract with “Acme Inc.” is worthless if the entity that can actually perform is “Acme Holdings LLC.” Misnamed parties are one of the most common and most expensive contract errors.

    What type of contract is this? NDA, MSA, SaaS agreement, employment, vendor? Each type has its own set of “must-have” and “watch-out” clauses. Knowing the type tells you what to look for.

    What’s the governing law? Jump to the back — governing law is almost always in the final sections. This determines which rules apply to everything else. A non-compete governed by California law is essentially unenforceable. The same clause governed by Texas law has teeth.

    What’s the term? How long are you bound? Is there auto-renewal? What’s the notice period for termination? If the contract auto-renews with a 90-day notice requirement and you’re already inside that window, you may be locked in for another year before you even finish reviewing.

    Minutes 3-5: The Risk Scan

    Now scan — don’t read — for the five clause categories that cause 90% of contract disputes:

    1. Indemnification. Who’s indemnifying whom, and for what? Is it mutual or one-sided? Are there caps? Is the trigger “negligence” or “any breach”? The difference between “Party A shall indemnify Party B for claims arising from Party A’s negligence” and “Party A shall indemnify Party B for any and all claims” is potentially unlimited liability.

    2. Limitation of Liability. Is there a cap on damages? What’s excluded from the cap? Watch for “excluding indemnification obligations” — which means the cap is effectively meaningless for the most expensive scenarios. Also check: are consequential damages excluded? For whom?

    3. Intellectual Property. Who owns what gets created during the contract? If you’re the service provider, does the work-for-hire clause transfer everything — including your pre-existing IP and tools? Look for “arising from” vs. “arising under” the agreement. One phrase captures everything tangentially related; the other is limited to the specific deliverables.

    4. Termination. Can either party terminate for convenience, or only for cause? What constitutes “cause”? Is there a cure period? What happens to payment obligations upon termination — are fees refundable or non-refundable? What about work already completed but not yet paid for?

    5. Non-Compete / Non-Solicit / Exclusivity. Are there restrictions on your ability to work with competitors or hire people? What’s the scope — geographic, temporal, and by activity? A one-year non-compete limited to direct competitors in your metro area is very different from a two-year non-compete covering “any business that could be considered competitive” globally.

    Minutes 6-8: The Asymmetry Test

    This is where most lawyers — and all non-lawyers — miss things. Ask yourself one question about every major clause: “Is this symmetrical?”

    Contracts between equal parties should have roughly equal obligations. When they don’t, it’s either a negotiation tactic or an oversight. Either way, it’s leverage.

    Common asymmetries to check:

    • Termination rights. Can they terminate for convenience but you can only terminate for cause? That’s a red flag.
    • Indemnification. Do you indemnify them for “any claims” but they only indemnify you for “third-party IP claims”? You’re carrying far more risk.
    • Representations and warranties. Are you making broad reps about your business while they make none? Reps are promises — and broken promises become breach claims.
    • Notice requirements. Do you have 10 days to cure a breach but they have 30? Time asymmetry is power asymmetry.
    • Assignment. Can they assign the contract to anyone (including a competitor who acquires them) but you need written consent? This matters more than people think — especially in M&A scenarios.

    Minutes 9-10: The “What If” Pass

    Read the contract assuming everything goes wrong. The parties disagree. Someone doesn’t pay. The project fails. A data breach happens. Now ask:

    • Where do disputes get resolved? Arbitration, mediation, or litigation? Which venue? Mandatory arbitration in a distant jurisdiction can make it economically impossible to enforce your rights.
    • Who pays legal fees? Is there a prevailing-party attorney’s fees clause? Without one, even winning a lawsuit costs you money.
    • What survives termination? Confidentiality, indemnification, and IP clauses should survive. If they don’t, your protections evaporate the moment the contract ends.
    • Force majeure. After 2020, everyone checks this. But check what’s actually covered and whether it excuses performance entirely or just delays it.

    Pro tip: Focus especially on the 5 contract clauses that cost businesses the most during your review.

    The Checklist (Save This)

    Here’s the framework condensed:

    Identity Check (2 min): Correct parties → Contract type → Governing law → Term & renewal

    Risk Scan (3 min): Indemnification → Liability caps → IP ownership → Termination → Non-compete

    Asymmetry Test (2 min): Mirror each obligation — is it equal both ways?

    What-If Pass (2 min): Dispute resolution → Fee shifting → Survival clauses → Force majeure

    Final question: After all that — would you be comfortable if the other side enforced every single clause exactly as written?

    If the answer is no, you’ve found your redline.

    What This Framework Can’t Do

    This framework catches the structural risks — the clauses that cause the most damage when things go wrong. It’s what experienced lawyers do intuitively after reviewing thousands of contracts.

    But it requires you to do the scanning, the comparing, the jurisdiction checking, and the benchmarking yourself. For one contract, that’s manageable. For five contracts in a day? For twenty in a week? The framework works, but the human executing it gets tired.

    That’s exactly why we built ContractPilot.

    What If You Could Do This in 90 Seconds?

    ContractPilot runs this exact framework — automatically, on every contract you upload.

    Upload a PDF or Word document. In 90 seconds, you get a structured risk report that covers every element of this checklist: identity verification, clause-by-clause risk scoring, asymmetry detection, jurisdiction-specific analysis, and a plain-English summary you can share with your client.

    It doesn’t replace your judgment. It gives your judgment better inputs. Instead of spending 10 minutes scanning for risks, you spend 10 minutes deciding what to do about the risks ContractPilot already found.

    Your first three contracts are free. No credit card. No sales call.

    Upload Your First Contract →

    ContractPilot AI reviews contracts the way experienced lawyers do — systematically, thoroughly, and fast. Purpose-built for solo practitioners and small firms. $49/month.