Contract Playbooks for Sales Teams
Introduction : Closing a deal with a customer involves multiple factors. Not only will you need to agree on the price, but you will also have to consider payment terms, warranties, limitations of liability, IP and termination. Sales teams will want to negotiate efficiently whilst ensuring they can meet the needs of the customer. However, legal teams will want to ensure they are not putting the business into any unnecessary risk.
If every contract needs to go through detailed legal review this can cause delays in the negotiation process. However, if you allow sales teams the flexibility to negotiate terms within the contract this can cause inconsistencies and mean you are agreeing to terms you may not be able to provide.
A Contract Playbook will help mitigate this. It provides sales teams with the guidance they need to know what terms they should be negotiating, what terms they can be flexible with and what terms require legal/management approval. This will set boundaries for your sales teams to ensure they are not being too flexible.
This article will look at how Contract Playbooks can be used within India, what legal considerations there are around certain contract clauses and how a Clause Matrix can be used to ensure consistency.
Legal Provisions
Indian Contract Act 1872
The Indian Contract Act, 1872 provides general provisions for commercial contracts. Section 10 provides the requirements for valid contracts including free consent, competent parties, lawful consideration and lawful object. Section – 23 covers lawful consideration.
When drafting your standard terms, it is important to ensure that your clause is valid. Just because it is included in your template does not mean it can be used.
Section – 73 and 74 provide compensation for breaches of contract. This is important when negotiating limitations of liability, indemnities and damages. When drafting your contractual terms you should ensure that you are using the principles of the Statute.
Specific Contractual Obligations
Depending on the nature of your deal, you may need to consider certain legislation. For example, if including IP clauses you may need to include provisions from the Copyright Act 1957, Patents Act 1970 or Trade Marks Act 1999.
When drafting payment terms you may need to consider the requirements of the Micro, Small and Medium Enterprises Development Act 2006 if the supplier falls under this legislation.
If you are entering into an agreement relating to IT you may need to consider the Information Technology Act 2000 and data protection.
Your Contract Playbook should include general contract guidance and specific guidance around certain legislation.
Legal Analysis
What a Contract Playbook Should Achieve
A Contract Playbook is an internal document which details what terms you would like to include in your contract, what terms you can be flexible with and what terms require approval. For example, you may want your standard payment terms to be 30 days. However your sales representative may be able to offer 45 days to a key strategic customer, however this should fall within your approved limit. If your sales representative asks for 90 days this may require approval from your finance head.
This provides your sales teams with some flexibility whilst ensuring they are considering significant changes.
Your Contract Playbook should detail:
What we would like to include – This is your standard contractual wording.
What we can be flexible with – This is a pre-approved clause which your sales team can be flexible with.
What we need approval for – This is a request which requires legal, finance or senior management approval.
The aim is to increase efficiency in your standard negotiations however ensure you are considering significant legal/financial exposure.
Liability Caps and Indemnities
Limitations of liability are one of the most important clauses in a commercial agreement. This will outline how much liability you have.
You may wish to include a limitation of liability clause to limit your total liability to a specific figure. For example, this could be your fees paid/payable under the contract over a period of time. However, this will depend on the nature of the transaction, value of the contract, risk and your negotiating power.
Your Contract Playbook should provide guidance on what your standard limitation of liability is, what situations you can be flexible with to increase the limit and what situations require legal review. For example, your business may be more flexible with confidentiality breaches, IP infringements, fraud or situations where you cannot legally exclude/limit your liability.
Indemnities should also be considered. Including a broad indemnity may cause you to have more exposure than your standard limitation of liability if it is not clearly outlined in your agreement.
Section – 73 and 74 of the Indian Contract Act provide the statutory provisions around compensation for breach and stipulated sums. Your limitation of liability should be clearly worded.
Your Contract Playbook should not just say you always need to have a limitation of liability. It should provide guidance on when you should include a limitation, what exceptions can be considered and who has approval.
Payment Terms and Commercial Commitments
Payment terms will directly impact your cashflow. You should clearly outline what the price is, what taxes apply, what your invoicing requirements are, when payment is due and what will happen if payment is not made on time.
You may want your sales teams to have some flexibility when negotiating with larger customers or long term projects. Your Contract Playbook can allow some flexibility with payment terms however if they want to extend the credit terms, milestone payments or significant discounts then this will require approval from finance.
You should also outline what the invoicing terms are and what will happen if there are any disputes. If payment is to be made based on milestones then these should be clearly outlined.
If you are dealing with qualifying micro/small enterprises then you should consider the payment terms outlined in the MSMED Act 2006.
A clear Contract Playbook will enable your sales teams to negotiate reasonable terms without committing to anything which may conflict with your financial policies or legal obligations.
Intellectual Property Rights
Intellectual Property clauses should be carefully considered if dealing with technology, consultancy, design, media or software contracts. You should outline what IP the parties own and what IP will be created during the performance of the contract.
For example, if you are providing a bespoke software service you may use existing code, tools and processes. If the agreement does not outline what IP you own and what IP will be created then there may be disputes over ownership and what can be used.
Your Contract Playbook should outline your preferred position on ownership, licences, what can be used, third party materials, infringement claims and what restrictions are placed on transferring/modifying IP.
Depending on the nature of your transaction you may want to be more flexible. For example, if the customer is purchasing a bespoke product they may want more rights than someone subscribing to a standard software platform. Your Contract Playbook should provide flexibility to ensure you aren’t accidentally giving away ownership of valuable background technology.
If there are significant differences to your standard terms around ownership/licensing then this should require legal review.
Warranties and Service Commitments
Warranties will outline what standards your goods/services will meet. This could include conformity with specifications, quality, performance, authority to enter into the agreement or compliance with applicable law.
If your sales teams are promising broad warranties to win a deal without considering whether you can deliver then this could cause issues. For example, you may promise continuous service or guarantee a certain outcome for the business.
Your Contract Playbook should outline what standard warranties you will include, what service levels can be negotiated and what warranties require specialist approval. If there are service levels then you should outline how they will be measured, what exclusions apply and what will happen if they are not met.
You should also outline how long your warranties last and what remedies are available. Do not include overly broad warranties which may conflict with your negotiated liability clauses.
Termination and Exit Rights
Termination clauses outline when the contract can be terminated. You should consider terminating for breach of a material term, insolvency (if allowed by law), long term force majeure, convenience and failure to meet agreed milestones.
Your Contract Playbook may allow standard termination rights for breach of contract however this may have a cure period. If the customer wants to terminate immediately then this may require legal review.
You should also consider the commercial implications of termination. You may need to include provisions for unpaid amounts, works in progress, returning/deleting information, assisting with the transition and continued use of IP.
Depending on the nature of your contract you may want to be more flexible. For example, if it is a short term service contract you may want to be more rigid however if it is a long term implementation project you may want to allow more flexibility. If you are too rigid then your contract may not be commercially attractive. If you allow too much flexibility then you may be putting yourself at risk of losing money.
Your Contract Playbook should provide standard wording and approved terms depending on the nature and length of your engagement.
Maintaining Flexibility without Losing Control
If your Contract Playbook is too restrictive and everything requires lengthy approval then your sales teams could see this as an additional barrier. If your rules are too wide then you may not be preventing them from committing to something they shouldn’t.
A Clause Matrix can help with this as it outlines for each clause what your standard position is, what can be flexible with and what requires escalation. Clause Preferred Position Escalation, Limitation of Liability Defined limitation of liability Significant exposure with no limitation or high increase. Payment Standard payment terms Extended credit or unusual payment terms.
Intellectual Property Clear ownership/licensing Background IP transferred or broad exclusive rights.
Warranties Defined and measurable Absolute guarantees or open ended.
Termination Defined reasons for termination and cure period Immediate termination or extensive exit obligations.
This should be tailored to your business and risk appetite. All figures, thresholds and approvals should be decided internally.
Relevant Case Laws
Nabha Power Ltd. v Punjab State Power Corporation Ltd. (2018) 11 SCC 508
The Supreme Court looked at the principles around interpreting commercial contracts. They highlighted the importance of interpreting clauses in context and not implying any terms.
Practical Implications
A well drafted Contract Playbook can reduce repeated legal reviews, provide consistency in your negotiations and help your sales teams identify any issues.
You can use the following framework:
- Review previous contracts to identify what clauses are commonly negotiated and any recurring issues.
- Create standard terms for Limitation of Liability, Payment, IP, Warranties and Termination.
- Identify what terms can be flexible with.
- Identify what terms require legal, finance, technical or senior management.
- Use a Clause Matrix to outline what your preferred position is, what can be flexible with, what the risk is and who has approval.
- Train your sales teams to understand why the rules are in place and the commercial/legal reasons.
- Keep your Contract Playbook up to date so your teams are using the most up to date approved clauses/templates.
- Identify any exceptions. Note any significant changes and consider if they should impact any future updates to your Contract Playbook.
Your legal teams should also keep up to date with any changes in law and what is commonly being negotiated. If your Contract Playbook isn’t kept up to date then it could become unreliable. Particularly if your business model, technology or regulatory obligations change.
Conclusion
Using a Contract Playbook can help your business close deals efficiently whilst still protecting you legally. It provides clarity for your sales teams around what they can negotiate, what they can be flexible with and what they need to escalate.
The best Contract Playbooks will provide your sales teams with a consistent starting point without forcing all your customers into the same terms. They will allow reasonable flexibility depending on the nature of the transaction, customer requirements and commercial risk.
Using a combination of standard clauses, clear escalation points and a Clause Matrix can help reduce any unnecessary delays and prevent you from committing to anything outside your risk appetite. The aim is not to remove flexibility from your negotiations but to ensure it is within clear boundaries.
Author:- Atharva Vaidya, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
Endnotes
- Indian Contract Act, 1872, §§ 10, 23, 73–74.
- Micro, Small and Medium Enterprises Development Act, 2006.
- Copyright Act, 1957.
- Patents Act, 1970.
- Trade Marks Act, 1999.
- Nabha Power Ltd. v. Punjab State Power Corporation Ltd., (2018) 11 SCC 508.
- Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136.
