What is the most common red flag in a service agreement?

The most common red flag is the 'Automatic Renewal' clause. It often requires a specific notice period—such as exactly 60 days before the term ends—and failing to meet this window can lock you into another multi-year commitment.

Can I negotiate these red flags out of a standard contract?

Yes. Most suppliers use a 'standard' template that is intentionally biased in their favour. Highlighting these points and requesting amendments is a normal part of business negotiations.

Should I be worried about 'Limitation of Liability' clauses?

Yes, if the limit is set too low. The liability cap should be proportionate to the potential risk and the value of the contract. A cap that is lower than your insurance deductible is a significant risk.

Blog · ContractChecker

Red flags to look for in a supplier contract: A guide

18 September 2026 · 3 min read

Signing a new supplier contract is a significant milestone for any business, but the excitement of a new partnership often masks potential legal and financial traps. A poorly drafted agreement can lead to unexpected costs, service failures, or legal disputes that drain your resources. Identifying red flags to look for in a supplier contract early in the negotiation process allows you to address concerns before they become binding obligations. This guide highlights the common pitfalls that every business owner and procurement manager should recognise during their review.

Ambiguous service levels and vague obligations

One of the most dangerous elements in a supplier contract is ambiguity regarding what is actually being delivered. If the description of services is high-level or relies on vague adjectives like 'satisfactory' or 'reasonable', you have no objective way to measure performance. Without concrete Service Level Agreements (SLAs), a supplier can underperform without being in breach of contract.

Look for specific metrics such as response times, delivery windows, or quality benchmarks. If these are missing or listed as 'best efforts' rather than 'guaranteed', the supplier is essentially shifting all the operational risk onto your business.

Unbalanced termination and renewal clauses

A fair contract should provide a clear path for both parties to end the relationship. A major red flag is the 'evergreen' clause, which automatically renews the contract for another full term unless you provide notice in a very narrow window. This can trap you into years of unwanted service.

Pay close attention to termination for convenience versus termination for cause. If the supplier can cancel the agreement at any time without a reason, but you are locked in for the duration of the term, the power dynamic is heavily skewed in their favour. Ensure you have a 'right to cure' period where the supplier must fix a problem before you are forced to terminate.

Automatic renewal periods exceeding 12 months.
Notice periods for cancellation that are longer than 90 days.
High 'early exit' fees that make termination financially impossible.
Lack of a clause allowing you to terminate immediately for material breaches.

Hidden costs and aggressive price increases

Suppliers often include clauses that allow them to increase prices mid-term. While some adjustment for inflation is standard, a red flag is a clause that permits the supplier to raise prices at their sole discretion without a cap. This makes it impossible to budget for the long term.

Examine the 'additional charges' section carefully. Look for hidden fees for onboarding, maintenance, or data retrieval. In the digital age, many companies find themselves hit with 'exit fees' when trying to move their data to a new provider. To help manage these risks, tools like Jittan’s ContractChecker can review contracts and agreements for red flags, fairness issues, and practical points to consider before you sign.

Indemnity and limitation of liability

Liability clauses determine who pays when things go wrong. A supplier may try to limit their liability to a very small amount, such as the fees paid in the last three months, even if their negligence causes you significant losses. Conversely, they might ask you for a broad indemnity, meaning you agree to pay for their legal costs in certain situations.

You must ensure that the supplier remains liable for their own negligence, data breaches, or intellectual property infringements. If the contract asks you to waive your right to sue for direct losses caused by the supplier, this is a critical red flag that requires immediate legal or professional intervention.

Recognising these red flags is the first step toward securing a fair and sustainable business partnership. Always take the time to read the fine print and seek clarity on any terms that seem one-sided or unclear.

Quick answers

What is the most common red flag in a service agreement?: The most common red flag is the 'Automatic Renewal' clause. It often requires a specific notice period—such as exactly 60 days before the term ends—and failing to meet this window can lock you into another multi-year commitment.
Can I negotiate these red flags out of a standard contract?: Yes. Most suppliers use a 'standard' template that is intentionally biased in their favour. Highlighting these points and requesting amendments is a normal part of business negotiations.
Should I be worried about 'Limitation of Liability' clauses?: Yes, if the limit is set too low. The liability cap should be proportionate to the potential risk and the value of the contract. A cap that is lower than your insurance deductible is a significant risk.