Posion Pill – Clauses in legal contracts
- Time is of the essence
- “The parties herby agree that time is of the essence with respect to performance of each parties’ obligations under this Agreement.”
- “Time is of the essence for each and every provision of this Agreement.”
- This means that strict compliance with specified deadlines and milestones is absolutely vital. If such deadlines or milestones are not complied with, then no matter how short the delay is, the innocent party will generally be allowed to terminate the contract, and claim damages (among other things) from the party in breach.
- Procurement should avoid “subject to change” or “to be agree”
- Sales should avoid this contract term at all costs.
- Liquidated Damages (LD)
- LDs are a pre-determined sum that a party agrees to pay the other party for a specific breach of contract e.g. for project delay. LDs must be a genuine pre-estimate of the damage; if the sum its disproportionate to the damage it may be construed as a penalty and be unenforceable.
- There is no need to prove actual loss in order to claim payment of LDs.
- Where supply of goods or services, ensure that:
- LDs are limited to delay to one key milestone e.g. delivery date or commissioning date, and not every inter-mediate milestone that is delayed;
- there is a LDs liability cap; and
- LDs are computed on the affected goods or services only and not the total contract price.