The Contract Clause That Almost Sank Our Company
A single sentence about unlimited liability, signed in a hurry, taught me to read every page.
In 2020, when we were still fewer than ten people, we signed our biggest contract to date with a logistics group that ran several large distribution centers. The deal was worth around €220,000 a year, which at the time was more than half our revenue. We were so excited that we signed their standard agreement after a quick read and one phone call with a lawyer friend.
Eight months later, one of their sites had a major system outage that delayed outbound shipments for most of a day. Their legal team pointed us to clause 14.3. It turned out we had agreed to unlimited liability for consequential damages.
What that sentence meant
In plain words, we had promised to cover not just the cost of fixing our software, but any business losses caused by a failure. Missed deliveries, penalty fees from their customers, overtime for staff. Their initial estimate of the damage from that one day was about €310,000.
We did not have €310,000. We had about €190,000 in the bank and a team that was paid at the end of every month.
How it was resolved
I am going to be careful here, because the details are private. In summary, our investigation showed the outage was partly caused by a network change on their side, which our logs could prove. After six weeks of tense meetings, two lawyers, and very little sleep, we agreed on a settlement that we could survive: a service credit and a renegotiated contract, with no cash payment.
We were lucky. If the logs had been less clear, I am not sure we would still exist.
What I check now
I am not a lawyer, and nothing here is legal advice. But I learned which parts of a contract a founder must personally understand rather than delegating. Before I sign anything significant, I make sure I can explain these in one sentence each:
- Limitation of liability. Is there a cap, and is it tied to what they actually pay us?
- Consequential damages. Are they excluded, or are we on the hook for their lost business?
- Service levels. What uptime have we promised, and what happens if we miss it?
- Termination. Under what conditions can either side walk away, and how quickly?
If I cannot explain one of these clearly, the contract waits until I can.
The habit that came out of it
We now keep a simple one-page summary for every customer contract, written in plain Dutch, listing those four points. Our sales team cannot promise anything that contradicts the summary. Our engineers can read it too, so they know which customers have strict service levels.
We also budget for a proper commercial lawyer on every deal above a certain size. It costs us around €1,500 to €3,000 per contract. Compared with the cost of clause 14.3, it is the cheapest insurance I have ever bought.
The logistics group is still a customer, by the way. Their new contract caps our liability at twelve months of fees, which is standard and fair. Their procurement manager told me later that she had been surprised we signed the original version at all. "Most vendors cross that clause out," she said. I had not known you were allowed to.
