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Sales_Agreement.pdf
Purchase / Sale Agreement · ABC Technology Solutions, LLC ↔ Acme Manufacturing, Inc. · 3 pages
Biggest money exposure
Late payment fees: 5% per month, compounded monthly (roughly 60% per year). A short delay on even part of the $67,500 balance could quickly grow into a large unexpected debt.
Score based on: 5 high-risk findings (+15 each), 7 medium-risk findings. Lower is better.
What this is
This is a 3-year contract for Acme Manufacturing to buy an AI analytics software platform, setup services, and training from ABC Technology Solutions for a total of $67,500. It covers how and when payments are made, what the software does, and the rules both sides must follow.
Who it favors: This contract strongly favors the Seller (ABC Technology Solutions). The Seller can exit the deal in 10 days if a payment is late, but the Buyer must wait up to 60 days to exit even during a serious problem. The Seller caps its own financial risk, faces no insurance requirements, and disclaims responsibility for its AI recommendations — while the Buyer carries broad, unlimited financial exposure for third-party claims.
Where you could lose money
• Late payment fees: 5% per month, compounded monthly (roughly 60% per year). A short delay on even part of the $67,500 balance could quickly grow into a large unexpected debt.
• Uncapped indemnification: The Buyer must cover the Seller for any third-party lawsuit, including attorney fees, with no dollar limit and no exception even if the Seller is at fault.
• Unauthorized charges: The Seller can bill $250/hour for extra work and rack up charges up to $9,999 per change without the Buyer's written approval — with no paper trail to dispute them.
• Unintended 3-year renewal: Missing the 120-day cancellation window locks the Buyer into another full 3-year term, potentially worth $67,500 or more.
• Insurance costs: The Buyer alone must carry $2M General Liability, $5M Cyber Liability, and $2M Professional Liability coverage — the Seller has no stated insurance requirement despite controlling the software and data.
Your key obligations
• Buyer pays 50% of $67,500 (about $33,750) at signing, and the remaining balance within 15 calendar days after delivery.
• Buyer must inspect the software within 5 business days of delivery and reject it in writing if there is a problem — silence counts as acceptance.
• Buyer must back up all of its own business data; the Seller is not responsible for data loss.
• Buyer must maintain three insurance policies: $2M General Liability, $5M Cyber Liability, and $2M Professional Liability.
• Buyer must cancel at least 120 days before the contract end date to avoid an automatic 3-year renewal.
Deadlines & dates
• At signing: Pay 50% deposit (approximately $33,750).
• Within 30 business days after initial payment: Seller must deliver the software.
• Within 5 business days after delivery: Buyer must inspect and reject in writing or the software is considered accepted.
• Within 15 calendar days after delivery: Buyer must pay the remaining balance.
• At least 120 days before the 3-year contract end date: Buyer must cancel in writing to avoid automatic renewal.
Suggested next steps
• Ask a contract attorney whether the 5% compounding monthly late fee and the uncapped indemnification clause are negotiable before signing.
• Ask a legal or financial professional to review whether the one-sided termination rights (10 days for Seller vs. 60 days for Buyer) are acceptable given your business needs.
• Confirm with a professional whether the $10,000 threshold for unapproved change orders should be reduced or eliminated, and whether a written-approval requirement for all extra charges can be added.
• Ask a professional to review the 120-day auto-renewal notice requirement and whether a shorter window or a calendar reminder system should be part of your contract management process.
• Review with an insurance advisor whether you currently carry — or can afford — the required $2M General Liability, $5M Cyber Liability, and $2M Professional Liability policies, and what those policies will cost annually.
“Payments received after the due date incur a 5% monthly late fee, compounded monthly.”
If you pay late, you get charged 5% of what you owe every single month, and that fee keeps growing on top of itself. That adds up to about 60% per year — much higher than typical late fees.
Why it matters: Compounding monthly late fees can snowball very quickly, turning a small delay into a large extra charge. This rate is far above standard commercial late fees, which are usually 1–1.5% per month.
Compounding 5% monthly late fees (effectively ~60% APR) are aggressive and could create significant unexpected debt from even a short payment delay.
Questions to ask:
• Would the Seller agree to a lower, non-compounding late fee, such as 1.5% per month?
• Is there a grace period before the late fee begins to apply?
“Buyer shall indemnify Seller against all third-party claims, including attorney fees.”
If anyone outside this contract sues the Seller because of something related to this deal, you (the Buyer) have to pay the Seller's legal bills and any damages — even if the Seller was partly at fault.
Why it matters: This indemnification is entirely one-sided — only the Buyer must protect the Seller, not the other way around. There is no cap, no carve-out for Seller negligence, and it includes attorney fees.
A one-sided, uncapped indemnification with no carve-out for Seller fault exposes the Buyer to potentially unlimited financial liability for third-party claims.
Questions to ask:
• Why is there no mutual indemnification requiring the Seller to also protect the Buyer from third-party claims?
• Can the indemnification be limited to claims arising solely from the Buyer's own actions or negligence?
“Additional work is billed at $250/hour. Changes under $10,000 do not require written approval.”
If you ask for extra work, it costs $250 per hour. Surprisingly, changes that cost less than $10,000 don't need to be approved in writing — meaning charges can pile up without a formal sign-off.
Why it matters: Without a written approval requirement for changes under $10,000, the Seller could bill for significant additional work that the Buyer may dispute but have little documentation to challenge.
Allowing up to $10,000 in charges without written approval creates a risk of unauthorized or disputed charges with no paper trail to protect the Buyer.
Questions to ask:
• Can the agreement be changed so that all additional work, regardless of amount, requires written approval?
• Is there a cap on the total amount of change-order work that can be billed in any given month?
“Automatically renews for additional three-year terms unless cancelled at least 120 days before expiration.”
When the 3-year contract ends, it automatically locks you in for another 3 years unless you give written notice to cancel at least 120 days (4 months) before the end date.
Why it matters: A 120-day cancellation notice window is unusually long and easy to miss, potentially trapping the Buyer in another 3-year, $67,500+ commitment unintentionally.
A 120-day notice window for a 3-year auto-renewal is well above the typical 30–60 day standard and significantly increases the risk of an unintended multi-year renewal.
Questions to ask:
• Can the cancellation notice window be reduced to 30 or 60 days, which is more standard?
• Will the Seller provide a reminder notice before the cancellation deadline approaches?
“Seller may terminate for payment over 10 days late. Buyer may terminate only for material breach after 60 days to cure.”
The Seller can cancel the contract if you're just 10 days late on a payment. But if the Seller does something seriously wrong, you have to wait 60 days for them to fix it before you can cancel.
Why it matters: This is heavily one-sided: the Seller has a fast, easy exit trigger while the Buyer faces a long, difficult path to termination even for serious Seller failures.
Asymmetric termination rights strongly favor the Seller, leaving the Buyer locked in for up to 60 days even during a material breach while the Seller can exit in 10 days for a late payment.
Questions to ask:
• Can the Buyer's termination rights be expanded to include non-performance or failure to meet service levels?
• Can the Seller's termination trigger be extended to at least 30 days to match more standard commercial terms?
“Buyer shall pay 50% upon contract execution and the remaining balance within 15 calendar days after delivery.”
You pay half the total ($33,750) the moment you sign the contract, and the other half within 15 days after the software is delivered to you.
Why it matters: A 50% upfront deposit is a significant financial commitment before the software is delivered or tested. The 15-day window for the remaining balance is relatively short.
Paying 50% before delivery and acceptance means the Buyer has limited leverage if the product does not meet expectations upon receipt.
Questions to ask:
• Can the final payment be tied to formal acceptance rather than delivery?
• What happens to the deposit if the Seller fails to deliver within the agreed 30 business days?
“Seller warrants substantial conformity with documentation for 90 days. Seller's sole obligation is repair or replacement.”
The Seller promises the software will mostly work as described in the manual for 90 days. If something is wrong, the Seller's only job is to fix or replace it — they don't owe you anything else.
Why it matters: A 90-day warranty is short for enterprise software, and limiting the remedy to repair or replacement means the Buyer cannot seek financial compensation for losses caused by defects.
The short warranty window and restricted remedies leave the Buyer with little recourse if software problems cause business disruption after 90 days.
Questions to ask:
• Can the warranty period be extended to 12 months, which is more standard for enterprise software?
• Does 'substantial conformity' mean the software could have known defects and still be considered compliant?
“Seller's liability shall not exceed amounts paid under this Agreement.”
The most money you could ever recover from the Seller for any problem — no matter how serious — is the total amount you paid them, which is $67,500.
Why it matters: This cap protects the Seller from large claims, which is common, but combined with the broad indemnification clause it creates a very one-sided risk picture for the Buyer.
The liability cap is standard, but it limits Buyer's recovery even in cases of significant Seller negligence or data breach.
Questions to ask:
• Are there any exceptions to the liability cap, such as for gross negligence or willful misconduct?
• Does this cap apply to data security incidents or breaches caused by the Seller?
“Seller will use commercially reasonable safeguards. Buyer is responsible for backing up its own business data.”
The Seller will try to keep your data safe using reasonable security measures, but if your data is lost, it's your responsibility to have your own backup. The Seller is not on the hook for lost data.
Why it matters: Placing full backup responsibility on the Buyer and using only a vague 'commercially reasonable' standard gives the Seller significant protection if a data loss event occurs.
Vague security standards and full Buyer responsibility for data backup could leave the Buyer unprotected in the event of a data breach or loss caused by the Seller's systems.
Questions to ask:
• What specific security standards or certifications does the Seller maintain (e.g., SOC 2, ISO 27001)?
• What is the Seller's obligation to notify the Buyer in the event of a data breach?
“AI-generated recommendations are informational and should be independently reviewed before business decisions.”
The AI tool's suggestions are not guaranteed to be correct, and you should double-check them before making any real business decisions based on them.
Why it matters: This clause limits the Seller's responsibility for the accuracy of the AI's output, which is the core product being purchased. It shifts the burden of verifying AI results entirely to the Buyer.
Paying $45,000 for an AI analytics platform while the Seller disclaims responsibility for the accuracy of its recommendations creates a significant value and risk mismatch.
Questions to ask:
• What accuracy or performance standards, if any, does the AI platform guarantee?
• If the AI provides a recommendation that leads to a measurable business loss, is the Seller liable in any way?
“Buyer shall maintain $2M General Liability, $5M Cyber Liability, and $2M Professional Liability coverage.”
You (the Buyer) are required to carry three types of insurance, including $5 million in cyber liability coverage. The Seller has no stated insurance requirements in this contract.
Why it matters: Requiring only the Buyer to carry insurance — especially $5M in cyber liability — is one-sided, particularly since the Seller is the one hosting and managing the AI platform and data.
Placing all insurance obligations on the Buyer while the Seller — who controls the software and data — has no stated coverage requirements is an unusual and asymmetric arrangement.
Questions to ask:
• What insurance coverage does the Seller carry, particularly for cyber liability and errors and omissions?
• Why is the Buyer required to carry cyber liability insurance when the Seller controls the platform and data?
“Seller shall deliver the software within 30 business days after receiving the initial payment. Training shall occur within 45 days after delivery.”
The Seller has up to 30 business days (about 6 weeks) to deliver the software after you pay the deposit, and training must happen within 45 days after that.
Why it matters: The delivery and training timelines are clearly stated, but there is no penalty or remedy specified if the Seller misses these deadlines.
Without a defined remedy or penalty for late delivery, the Buyer has limited recourse if the Seller misses the 30-business-day delivery window.
Questions to ask:
• What is the Buyer's remedy if the Seller fails to deliver the software within 30 business days?
• Can a service level agreement (SLA) with financial penalties for late delivery be added to the contract?
“Both Parties shall protect confidential information for five (5) years after termination.”
Both sides must keep each other's private business information secret for five years after the contract ends. This applies to both the Buyer and the Seller equally.
Why it matters: A five-year post-termination confidentiality period is fairly standard and the obligation is mutual, which is a balanced term.
The term is mutual and standard, though five years is on the longer end and may restrict how the Buyer can discuss its own operational data.
Questions to ask:
• What specific types of information are defined as 'confidential' under this agreement?
“All software and related intellectual property remain the property of Seller. Buyer receives a non-exclusive, non-transferable license.”
You don't own the software — you're just renting the right to use it. You can't share or transfer that right to anyone else, and the Seller keeps full ownership of everything.
Why it matters: This is standard for software licensing, but it means the Buyer has no ownership rights and the license could be revoked if the agreement is terminated.
Standard SaaS/software licensing terms, but the Buyer should understand they have no ownership stake in the platform they are paying to use.
Questions to ask:
• What happens to the Buyer's access and data if the Seller goes out of business or is acquired?
“Neither Party is liable for delays caused by events beyond reasonable control.”
If something completely outside either party's control — like a natural disaster or major outage — causes a delay, neither side can be blamed or sued for it.
Why it matters: This is a standard and mutual clause, but the lack of a defined list of qualifying events or a time limit on how long force majeure can excuse performance is worth noting.
The clause is mutual and standard, but the absence of a defined duration or list of qualifying events leaves some ambiguity.
Questions to ask:
• Is there a maximum time period after which either party can terminate if a force majeure event continues?
“State of Texas; exclusive venue in Harris County, Texas.”
Any legal dispute must be handled under Texas law and filed in Harris County (Houston), Texas — where the Seller is located, not where the Buyer is located in Dallas.
Why it matters: The Buyer is based in Dallas (Dallas County) but must litigate in Houston (Harris County), which adds travel costs and inconvenience if a dispute arises.
Venue is set in the Seller's home county, which is a minor but real inconvenience and added cost for the Buyer in any dispute.
Questions to ask:
• Would the Seller agree to a neutral venue or allow disputes to be resolved in Dallas County where the Buyer operates?
This analysis is decision support, not legal advice. Consult a licensed attorney before signing or relying on this document.