A business contract can look perfectly normal when it is signed.

The parties agree on the price, the project, the payment schedule, and the duration. Everyone signs. The business relationship begins.

The problems often appear later.

A customer argues that the vendor’s work was incomplete. The vendor says the contract never clearly defined the scope. A payment is withheld because the contract does not clearly establish when an invoice becomes due. One party wants to terminate the relationship, while the other argues that the contract does not allow early termination.

None of these situations necessarily begins with an obviously “bad” contract.

Often, the problem is a clause that seemed harmless when the agreement was signed but becomes important once the parties disagree.

Under Indonesian contract law, a valid agreement can have binding force between the parties. Article 1320 of the Kitab Undang-Undang Hukum Perdata (KUHPerdata) establishes the fundamental requirements for a valid agreement, while Article 1338 recognizes the binding force of agreements made lawfully by the parties.

For businesses, this means contract drafting is not simply about putting commercial terms into writing.

It is about making the parties’ rights, obligations, risk allocation, and remedies sufficiently clear before a disagreement occurs.

This article examines 12 contract clauses that businesses should review before signing a commercial agreement, together with practical red flags and questions that should be considered during a contract review.

Why Can a Business Contract Become a Source of Disputes?

A contract is intended to create certainty.

However, certainty depends heavily on the language used.

A clause such as: “The vendor will provide services according to the company’s requirements” may appear straightforward.

But what exactly are “the company’s requirements”?

Are they contained in a statement of work? An email? A proposal? A verbal discussion? A technical specification?

What happens if the company’s expectations change halfway through the project?

This illustrates a common commercial problem: the contract may be legally binding while still being operationally unclear.

Disputes can arise from:

• ambiguous wording;
• inconsistent provisions;
• undefined responsibilities;
• missing deadlines;
• unclear payment conditions;
• excessive or unclear liability;
• poorly drafted termination rights;
• unclear ownership of intellectual property;
• inadequate confidentiality provisions;
• inappropriate force majeure provisions; or
• an unsuitable dispute-resolution mechanism.

A good contract review therefore asks not only:

“Is this clause legally valid?”

but also:

“What happens if the parties disagree about this clause six months from now?”

12 Contract Clauses That Businesses Should Review

1. Scope of Work and Deliverables

Function

The scope-of-work clause defines what each party is actually expected to deliver or perform.

For service contracts, this may include:

• services;
• deliverables;
• specifications;
• milestones;
• performance standards;
• acceptance criteria;
• timelines; and
• exclusions.

Risk if unclear

An unclear scope can create disputes about whether a particular task is included in the contract.

For example, a software development agreement states that the developer will build an “e-commerce platform.”

The client later expects:

• mobile applications;
• payment gateway integration;
• warehouse management;
• analytics;
• customer loyalty features; and
• post-launch maintenance.

The developer believes only the website was included.

The dispute is not necessarily about whether either party acted in bad faith.

It may simply be the result of an inadequate scope definition.

Red Flags

Watch for phrases such as:

• “as required by the client”;
• “all necessary services”;
• “complete solution”; or
• “and other services as requested.”

These phrases may create uncertainty if they are not accompanied by defined limits.

What to Check

Make sure the agreement clearly identifies:

• deliverables;
• specifications;
• milestones;
• acceptance criteria;
• exclusions;
• change-request procedures; and
• responsibility for additional work.

2. Rights and Obligations of the Parties

Function

This clause establishes what each party must do and what each party is entitled to receive.

Risk if unclear

A contract may specify the vendor’s obligations but say little about what the customer must provide.

For example, a vendor may be required to complete a project within 30 days, while the customer has no defined obligation to provide data, approvals, access credentials, or feedback.

The deadline may then become difficult to apply fairly.

Red Flags

Look for:

• one-sided obligations;
• undefined responsibilities;
• obligations dependent on third-party actions;
• obligations without deadlines; and
• terms such as “reasonable assistance” without further definition.

What to Check

Each material obligation should ideally have:

• a responsible party;
• a clear action;
• a deadline or trigger;
• required dependencies; and
• consequences if the obligation is not performed.

3. Price, Invoicing, and Payment

Function

Payment provisions determine how and when money moves between the parties.

Risk if unclear

A contract may state that the total project value is IDR 500 million but fail to explain:

• when invoices may be issued;
• when payment becomes due;
• whether payment depends on acceptance;
• whether taxes are included;
• whether expenses are reimbursable;
• whether partial payment is allowed; or
• what happens when payment is late.

A disagreement over a relatively simple invoice can therefore become a broader commercial dispute.

Red Flags

Pay attention to:

• unclear payment triggers;
• conflicting payment periods;
• undefined acceptance procedures;
• unspecified tax treatment;
• unilateral price-adjustment rights; and
• vague expense provisions.

What to Check

Confirm:

• contract price;
• currency;
• tax treatment;
• invoice requirements;
• payment deadline;
• bank details;
• withholding obligations where relevant;
• late-payment consequences; and
• conditions for withholding disputed amounts.

4. Contract Term and Renewal

Function

The term clause determines when the agreement begins and ends.

It may also regulate automatic renewal.

Risk if unclear

A contract can create uncertainty if the parties disagree about whether it has expired or automatically renewed.

For example, a one-year agreement contains an automatic-renewal clause but requires notice of non-renewal “before expiration.”

The parties later disagree about whether notice given 15 days before expiration was sufficient.

Red Flags

Review:

• automatic renewal;
• notice periods;
• renewal conditions;
• extension mechanisms;
• post-expiration obligations; and
• obligations that survive termination.

What to Check

The contract should clearly identify:

• effective date;
• expiration date;
• renewal mechanism;
• notice deadline; and
• treatment of outstanding obligations after expiration.

5. Default and Wanprestasi

Function

A default clause explains what constitutes a failure to perform contractual obligations and what remedies may become available.

Under Indonesian legal terminology, wanprestasi generally refers to failure to perform an obligation as required under an agreement.

Risk if unclear

A contract may say that a party is in default whenever it “fails to perform its obligations.”

That may be too broad.

Not every delay necessarily has the same legal or commercial significance.

A contract should distinguish material failures from minor administrative issues where appropriate.

Red Flags

Look for:

• undefined default events;
• automatic default provisions;
• unclear cure periods;
• disproportionate remedies;
• no distinction between material and minor breaches.

What to Check

Consider defining:

• events of default;
• notice requirements;
• cure periods;
• material breaches;
• repeated breaches; and
• available contractual remedies.

6. Penalties, Damages, and Liability

Function

These provisions determine the financial consequences of certain contractual failures.

Risk if unclear

A contract may contain a penalty but fail to explain how it interacts with actual damages, indemnification, limitation of liability, or other remedies.

For example, a vendor agreement imposes a daily penalty for delay but does not clearly address whether the customer can also claim additional losses.

That can create uncertainty about the intended allocation of risk.

Red Flags

Pay attention to:

• unlimited liability;
• broad indemnification;
• uncapped consequential damages;
• overlapping penalties and damages;
• unilateral liability;
• liability unrelated to the party’s actual responsibility.

What to Check

Review whether the agreement clearly addresses:

• contractual penalties;
• damages;
• indemnification;
• liability caps;
• exclusions;
• exceptions to liability caps; and
• the relationship between different remedies.

The appropriate structure depends on the transaction and the parties’ bargaining position.

7. Force Majeure

Function

A force majeure clause addresses extraordinary events that may prevent or materially affect contractual performance.

Risk if unclear

A poorly drafted force majeure clause may either be too narrow or too broad.

For example, a supplier may attempt to classify ordinary increases in costs or foreseeable operational difficulties as force majeure.

Conversely, a clause may be so narrow that genuine external events are not adequately addressed.

Red Flags

Watch for:

• vague definitions;
• no notification requirement;
• no obligation to mitigate;
• unlimited suspension periods;
• no termination mechanism after prolonged disruption.

What to Check

Consider:

• qualifying events;
• causation;
• notification;
• mitigation;
• temporary suspension;
• payment obligations;
• prolonged force majeure; and
• termination rights.

The clause should reflect the actual risks of the transaction rather than simply copying generic wording.

8. Confidentiality

Function

A confidentiality clause protects information disclosed during the business relationship.

This may include:

• financial information;
• customer data;
• pricing;
• business strategies;
• technical information;
• source code;
• trade secrets; and
• commercial plans.

Risk if unclear

A generic confidentiality clause may not adequately address how confidential information can be used or what happens after the relationship ends.

For example, a consultant receives a company’s customer database and internal pricing information. The contract says only that the consultant must “keep information confidential.”

It may not clearly address permitted use, disclosure to subcontractors, security measures, or post-termination obligations.

Red Flags

Check whether the clause:

• defines confidential information;
• identifies permitted disclosures;
• addresses compelled disclosure;
• controls subcontractor access;
• establishes security obligations;
• specifies confidentiality duration; and
• addresses return or destruction of information.

9. Intellectual Property Rights

Function

The intellectual-property clause determines who owns or may use intellectual property created, transferred, licensed, or disclosed during the business relationship.

This can be particularly important for:

• software development;
• branding;
• design;
• consulting;
• content creation;
• advertising;
• research and development; and
• technology transactions.

Risk if unclear

Consider a company hiring a developer to build a proprietary application.

The contract says:

“All work belongs to the client.”

But it does not distinguish between:

• newly created work;
• pre-existing code;
• third-party libraries;
• open-source components;
• development tools; and
• reusable frameworks.

A dispute may arise over what exactly was transferred or licensed.

Red Flags

Look for:

• undefined “work product”;
• unclear ownership;
• no treatment of pre-existing IP;
• no license for third-party components;
• no open-source provisions;
• unclear assignment or licensing mechanism.

What to Check

Clearly distinguish:

Background IP — intellectual property existing before the engagement.

Foreground IP — intellectual property created during the engagement.

Also address:

• ownership;
• assignment;
• licensing;
• permitted use;
• third-party materials;
• moral rights where relevant; and
• post-termination rights.

10. Termination

Function

A termination clause determines how and when a contract can end before its ordinary expiration.

Risk if unclear

A party may want to exit a commercial relationship but discover that the contract only allows termination for specific breaches.

Alternatively, a contract may allow termination “at any time” without addressing outstanding payments, confidential information, intellectual property, customer transition, or ongoing services.

Red Flags

Review:

• termination for cause;
• termination for convenience;
• notice periods;
• cure periods;
• insolvency-related events;
• regulatory changes;
• prolonged force majeure;
• post-termination obligations.

What to Check

The agreement should explain what happens after termination.

For example:

• What happens to unpaid invoices?
• Must advance payments be refunded?
• Who owns work already completed?
• Must confidential information be returned?
• What happens to customer data?
• What happens to licenses?
• Are any provisions intended to survive termination?

Termination is not simply about ending the contract.

It is also about managing the consequences of that ending.

11. Dispute Resolution

Function

This clause determines how disputes will be handled.

Possible mechanisms may include:

• negotiation;
• mediation;
• arbitration; or
• litigation through the courts.

Risk if unclear

A contract may contain multiple dispute-resolution provisions that do not work well together.

For example, one provision requires disputes to be resolved through arbitration while another refers disputes to a particular court.

This can create procedural uncertainty.

Red Flags

Look for:

• inconsistent dispute-resolution provisions;
• unclear arbitration institutions;
• unclear seat of arbitration;
• undefined court jurisdiction;
• missing escalation procedures.

What to Check

The parties should carefully consider:

• governing dispute mechanism;
• institution, if arbitration is selected;
• seat or place of arbitration;
• language;
• number and appointment of arbitrators;
• court jurisdiction where relevant;
• interim-relief mechanisms; and
• negotiation or mediation procedures.

The appropriate mechanism depends on the transaction, parties, enforcement considerations, and commercial objectives.

12. Governing Law

Function

The governing-law clause identifies the legal system intended to govern the agreement.

Risk if unclear

This becomes particularly important in cross-border transactions.

A company in Indonesia may enter into an agreement with a foreign company and fail to specify which law governs the contract.

The parties may later disagree about the applicable legal framework.

Red Flags

Watch for:

• no governing-law clause;
• inconsistent governing-law provisions;
• foreign law selected without considering enforcement;
• conflict between governing law and dispute forum.

What to Check

For an international commercial contract, examine:

• governing law;
• dispute forum;
• arbitration seat;
• enforcement considerations;
• language;
• mandatory Indonesian laws that may apply despite contractual choices.

A governing-law clause should be reviewed together with the dispute-resolution clause rather than in isolation.

Common Mistakes When Signing Business Contracts

Even a detailed contract can become risky if the signing process is poorly managed.

Common mistakes include:

1. Signing Without Reading the Attachments

Important obligations may be contained in:

• schedules;
• statements of work;
• purchase orders;
• technical specifications;
• policies; or
• incorporated terms and conditions.

2. Assuming “Standard Terms” Are Safe

A contract described as a “standard agreement” may still allocate significant risks to one party.

3. Focusing Only on Price

Commercial teams often negotiate price carefully while giving less attention to:

• liability;
• termination;
• IP;
• confidentiality;
• warranties;
• dispute resolution; and
• change mechanisms.

4. Ignoring Operational Reality

A contract may require something the business cannot realistically deliver.

Legal drafting should therefore be aligned with actual business operations.

5. Leaving Commercial Discussions Outside the Contract

Important commitments made through email or messaging applications can create uncertainty if they are inconsistent with the final agreement.

Material commercial terms should be properly documented.

6. Using the Same Contract for Every Transaction

A software development agreement, distribution agreement, employment agreement, construction contract, and investment agreement carry different risks.

A template should be adapted to the transaction rather than copied mechanically.

When Should a Business Contract Be Reviewed by a Lawyer?

Legal review becomes particularly valuable when the contract involves significant financial, operational, regulatory, or intellectual-property exposure.

Examples include:

• high-value commercial agreements;
• long-term contracts;
• strategic partnerships;
• distribution agreements;
• technology contracts;
• SaaS agreements;
• licensing arrangements;
• construction agreements;
• procurement contracts;
• investment-related agreements;
• contracts with foreign parties;
• contracts containing significant liability exposure; and
• agreements involving valuable intellectual property or confidential information.

A lawyer can review the contract from both a legal and commercial risk perspective.

The objective is not necessarily to make the contract longer.

It is to make the allocation of rights, obligations, risks, and remedies sufficiently clear for the transaction.

Business Contract Review Checklist

Before signing a commercial contract, ask the following questions:

Area	Key Question
Parties	Are the correct legal entities and authorized representatives identified?
Authority	Does the signatory have appropriate authority to bind the party?
Scope	Are the goods, services, or deliverables clearly defined?
Obligations	Are both parties’ responsibilities clear?
Payment	Are price, taxes, invoices, and payment deadlines clear?
Term	Is the effective period clearly stated?
Renewal	Does the agreement automatically renew?
Default	What constitutes wanprestasi or contractual default?
Remedies	What happens if one party fails to perform?
Liability	Is liability limited or unlimited?
Force Majeure	What events excuse or suspend performance?
Confidentiality	What information is protected and for how long?
IP	Who owns or licenses intellectual property?
Termination	When and how can the contract be terminated?
Disputes	How will disputes be resolved?
Governing Law	Which law governs the agreement?
Survival	Which obligations continue after termination?
Amendments	How can the contract be changed?
Notices	How must formal notices be delivered?
Entire Agreement	Which documents constitute the complete agreement?

Final Takeaway

A business contract is not simply a document recording a commercial deal.

It is also a framework for allocating rights, responsibilities, risks, remedies, and consequences between the parties.

The most important provisions are often the ones businesses pay the least attention to when everything is going well.

Scope-of-work provisions determine what must actually be delivered.

Payment provisions determine when money becomes due.

Default and liability clauses determine the consequences of non-performance.

Intellectual-property provisions determine who can use valuable work product.

Termination provisions determine how the relationship can end.

Dispute-resolution and governing-law clauses determine how disagreements may ultimately be handled.

Under Indonesian contract law, parties generally have significant contractual freedom, but that freedom operates within the limits established by applicable law. The validity and enforceability of an agreement therefore depend on more than simply having signatures on a document.

The practical lesson is simple:

Do not wait for a dispute to discover what your contract actually says.

A proper contract review should take place before the agreement is signed, when the parties still have the opportunity to clarify ambiguous provisions, negotiate risk allocation, and align the contract with the actual commercial relationship.

Contract Review & Contract Drafting by Kairos Advocates

Kairos Advocates assists businesses, founders, directors, procurement teams, startups, vendors, and corporate legal departments with Contract Review & Contract Drafting.

Our approach focuses on identifying potential contractual risks before they become commercial disputes, including issues involving:

• scope and deliverables;
• payment and commercial terms;
• liability and indemnification;
• intellectual property;
• confidentiality;
• termination;
• dispute resolution;
• governing law; and
• other transaction-specific provisions.

If you are about to sign an important business agreement, a professional contract review can help you understand the legal and commercial consequences before you commit.