Use this skill when drafting NDAs, MSAs, SaaS agreements, licensing terms, or redlining contracts. Triggers on contract drafting, NDA, MSA, SaaS agreement, licensing, redlining, terms of service, data processing agreements, and any task requiring commercial contract creation or review.
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Use this skill when drafting NDAs, MSAs, SaaS agreements, licensing terms, or redlining contracts. Triggers on contract drafting, NDA, MSA, SaaS agreement, licensing, redlining, terms of service, data processing agreements, and any task requiring commercial contract creation or review.
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Contract Drafting
Disclaimer: This skill provides general guidance on commercial contract structure
and drafting best practices. It is NOT legal advice. Always have qualified legal
counsel review contracts before signing or sending them to counterparties.
Commercial contracts are the binding agreements that govern business relationships.
Good contracts prevent disputes by making expectations, obligations, and risk allocation
explicit. This skill covers the structure, key clauses, and drafting process for the
most common commercial agreements - NDAs, MSAs, SaaS subscriptions, licensing agreements,
and data processing addendums - and the process of reviewing and redlining contracts
received from counterparties.
When to use this skill
Trigger this skill when the user:
Needs to draft a Non-Disclosure Agreement (NDA) or Confidentiality Agreement
Wants to create a Master Services Agreement (MSA) or Statement of Work (SOW)
Is drafting SaaS subscription terms or an End User License Agreement (EULA)
Needs to review, annotate, or redline a contract received from another party
Is creating a software or content licensing agreement
Needs a Data Processing Agreement (DPA) for GDPR or other privacy compliance
Wants to understand a specific contract clause or term
Is managing contract renewals, amendments, or terminations
Do NOT trigger this skill for:
Tax, employment law, or regulatory compliance advice - those require specialist counsel
Litigation strategy or dispute resolution proceedings in progress
Key principles
Clarity over legalese - Plain language reduces disputes. Every obligation,
right, and restriction should be understandable on first reading. If a clause
requires a lawyer to decode, rewrite it. Legalese that obscures meaning creates
ambiguity that parties exploit in disputes.
Define all terms - Every capitalized term must appear in a Definitions section
or be defined on first use. Undefined terms invite competing interpretations.
"Confidential Information," "Intellectual Property," "Affiliate," and "Services"
are the most commonly contested undefined terms.
Risk allocation must be explicit - Contracts exist to allocate risk. Who bears
the cost of a data breach? Who indemnifies whom for IP infringement claims? What
is the liability cap? If risk allocation is implicit or absent, courts default to
interpretations that may not match what either party intended.
Standard terms reduce negotiation - Using market-standard positions (e.g.,
mutual NDA, uncapped IP indemnity, 12-month liability cap for SaaS) speeds up
deals. Know which clauses are standard so you can focus negotiation energy on the
genuinely non-standard asks.
Version control everything - Every draft should be dated and versioned. Track
changes between drafts. Maintain a redline history. In a dispute, the negotiation
history can be used to interpret ambiguous terms (the "course of dealing" doctrine).
Core concepts
Contract structure
Every commercial contract shares a common skeleton:
Preamble - Parties, date, and recitals (background/context)
Definitions - Capitalized terms and their meanings
Operative clauses - The actual obligations and rights (services, payment, license grant)
Representations and warranties - Statements of fact each party makes
Indemnification - Who covers costs if a third party makes a claim
Limitation of liability - Caps on damages each party can recover
Confidentiality - What stays private and for how long
Term and termination - Duration, renewal, and grounds to exit early
General provisions (boilerplate) - Governing law, dispute resolution, notices,
assignment, entire agreement, severability, force majeure
Key clauses
Indemnification - Party A agrees to defend and pay costs if Party B is sued by
a third party because of Party A's breach or IP. Usually mutual for IP, one-sided
for gross negligence.
Limitation of liability - Caps total recovery at a multiple of fees paid (12 months
is standard for SaaS). Always carve out: death/personal injury, willful misconduct,
confidentiality breaches, and IP indemnity from the cap.
Representations and warranties - "We represent that our software does not infringe
third-party IP." Breach of a warranty triggers indemnification or termination rights.
Governing law and jurisdiction - Which state/country's law applies and where
disputes are resolved. Avoid agreeing to the other party's home jurisdiction.
Assignment - Whether either party can transfer the contract to a third party
(e.g., in a merger or acquisition). Standard position: neither party may assign
without consent, except to an acquirer of all or substantially all assets.
Risk allocation
Risk
Typical allocation
IP infringement by vendor's product
Vendor indemnifies customer
Customer's misuse of the product
Customer indemnifies vendor
Data breach caused by vendor
Vendor liable, often uncapped
Force majeure (pandemic, natural disaster)
Neither party liable
Consequential damages
Mutually excluded (carve out fraud)
Death / personal injury
Neither party may cap
Amendment process
All changes to a signed contract must be in writing, signed by both parties, and
reference the original agreement. Verbal amendments are unenforceable in most
jurisdictions. Use a formal Amendment or Change Order template with a sequential
number (Amendment No. 1, Amendment No. 2) to maintain a clear audit trail.
Common tasks
Draft a mutual NDA
A mutual NDA protects confidential information exchanged in both directions. Key
sections and what belongs in each:
1. Definition of Confidential Information
- Broad enough to cover all sensitive info
- Exclude: public domain, independently developed, received from third party,
required to be disclosed by law (with notice obligation)
2. Obligations of receiving party
- Use only for the Permitted Purpose
- Protect with at least the same care as own confidential info (not less than
reasonable care)
- Share only with employees/contractors on need-to-know basis
- Ensure recipients are bound by equivalent obligations
3. Term
- Duration of disclosure period (e.g., 2 years)
- Survival of confidentiality obligations (typically 3-5 years after expiry)
4. Return / destruction
- Upon request or expiry, return or certify destruction of materials
5. Remedies
- Acknowledge that breach causes irreparable harm - injunctive relief available
without bond requirement
Mutual NDA checklist:
Both parties named as both Disclosing Party and Receiving Party
"Confidential Information" defined broadly but with standard exclusions
Permitted Purpose scoped narrowly (e.g., "evaluating a potential business relationship")
Residuals clause reviewed - common vendor ask, weakens protection significantly
Governing law and jurisdiction specified
Dispute resolution (arbitration vs. litigation) agreed
Draft an MSA - key sections
A Master Services Agreement governs the overall relationship; Statements of Work
(SOWs) or Order Forms attach to it for specific engagements.
MSA core sections:
Services - reference to SOWs; change order process
Fees and payment - invoicing cadence, payment terms (Net 30 is standard), late fees
Intellectual property ownership - who owns work product (customer vs. vendor)
License grant - what license vendor grants to deliverables if customer doesn't own
Confidentiality - reciprocal, typically survives 3 years post-termination
Representations and warranties - authority to enter, non-infringement, compliance
Indemnification - IP indemnity (vendor), misuse indemnity (customer), mutual for breach
Limitation of liability - 12-month fee cap; carve-outs listed above
Term and termination - initial term, auto-renewal, termination for cause (30-day cure),
termination for convenience (60-day notice)
Governing law - specify state/country
IP ownership decision tree:
Custom development for customer - customer owns work product
Vendor's pre-existing IP used in deliverable - vendor retains, grants license
General improvements to vendor platform - vendor owns (common vendor position)
Draft SaaS subscription terms
SaaS agreements govern access to hosted software. Key distinctions from on-premise
licenses: customer never receives software copy; uptime and data portability matter.
Must-have SaaS clauses:
License grant - Non-exclusive, non-transferable right to access and use the
Service during the subscription term
Acceptable use policy (AUP) - Prohibited uses; consequences of violation
SLA and uptime - Minimum availability (99.9% is standard); credit remedy for
downtime; scheduled maintenance windows
Data ownership - Customer owns its data; vendor has license to process data
to provide the service
Data portability - Customer can export data in machine-readable format during
term and for 30 days after termination
Data deletion - Vendor deletes customer data within 30-90 days of termination
Security - Vendor maintains industry-standard security; incident notification
within 72 hours (aligns with GDPR)
Fees and auto-renewal - Subscription fees, renewal pricing, required notice
to cancel (typically 30-60 days before renewal date)
Review and redline contracts - checklist
When reviewing a contract received from a counterparty:
Pass 1 - Commercial terms (business review)
Scope of services/license matches what was agreed in negotiations
Fees, payment terms, and renewal pricing match the proposal
Term and termination rights are balanced
SLA and remedies are acceptable
Pass 2 - Risk clauses (legal review)
Liability cap is mutual and set at an acceptable level
Consequential damages exclusion is mutual (not one-sided)
IP indemnity covers customer's use of the product
Confidentiality obligations are mutual; no broad residuals clause
Governing law is acceptable (flag if counterparty's home jurisdiction)
Assignment restricted - cannot assign to competitors without consent
No unilateral price increase rights without adequate notice
Redlining etiquette:
Track all changes - never send a clean document with hidden edits
Add comments explaining why you are requesting a change, not just what
Prioritize - distinguish must-haves from nice-to-haves in your cover email
Offer alternative language when you delete a clause - it signals good faith
Draft licensing agreements - types
License type
Key characteristics
Common use
Exclusive license
Licensor cannot grant same rights to others
Distribution deals, branded products
Non-exclusive license
Multiple licensees allowed
Software, fonts, stock media
Sole license
Only licensor and one licensee
Compromise between exclusive and non-exclusive
Sublicensable
Licensee can grant rights to third parties
Platforms, resellers
Perpetual
No expiration date
One-time software purchase
Term
Expires on a date or event
SaaS, subscriptions
Core license grant clause structure:
[Licensor] grants to [Licensee] a [exclusive/non-exclusive], [sublicensable/
non-sublicensable], [perpetual/term], worldwide license to [reproduce, distribute,
display, perform, modify] the [Licensed Materials] solely for [Permitted Purpose].
Every word in the grant clause matters. Omitting "modify" means licensee cannot
create derivative works. Omitting "distribute" means they cannot share the output.
Create a DPA for GDPR compliance
A Data Processing Agreement is required under GDPR Article 28 whenever a controller
(customer) engages a processor (vendor) to process personal data.
Required DPA elements (GDPR Article 28(3)):
Subject matter and duration - What data is processed and for how long
Nature and purpose - How and why processing occurs
Type of personal data - Categories of data (names, emails, health data, etc.)
Categories of data subjects - Employees, customers, end users, etc.)
Processor obligations:
Process only on documented instructions from controller
Ensure personnel are bound by confidentiality
Implement appropriate technical and organizational security measures
Assist controller with data subject rights (access, deletion, portability)
Delete or return all data after services end
Provide all information necessary to demonstrate compliance
Notify controller of any personal data breach without undue delay
Sub-processors - List authorized sub-processors; notify controller of changes;
flow down equivalent obligations
International transfers - Mechanism for transfers outside EEA (SCCs, adequacy)
Audit rights - Controller may audit processor's compliance
Manage contract lifecycle
Pre-signature:
Use a contract template library to avoid starting from scratch
Run all contracts through legal review above a materiality threshold (e.g., >$25K)
Maintain a signature authority matrix - who can sign what dollar value
Store executed contracts in a contract management system with metadata tags
Post-signature:
Calendar all key dates: renewal deadlines, notice deadlines, price escalations
Set reminders 90 days before renewal if notice to cancel is required
Track obligations - who owes what to whom and by when
Document any material correspondence that constitutes an amendment or waiver
Renewal and renegotiation:
Benchmark pricing against market before renewing
Review SLA performance data before accepting auto-renewal
Consolidate vendors where possible to increase negotiating leverage
Anti-patterns
Anti-pattern
Why it's wrong
What to do instead
Undefined capitalized terms
Creates ambiguity - court will interpret against drafter
Define every capitalized term in the Definitions section before using it
Bilateral confidentiality with a residuals clause
Residuals lets receiving party retain and use "unaided memory" of confidential info, effectively gutting protection
Strike residuals clause or narrow it to specifically identified categories
Uncapped mutual liability
Exposes both parties to unlimited damages for any breach
Set a mutual liability cap; carve out only specific high-severity scenarios
Evergreen auto-renewal without notice window
Contract renews indefinitely; easy to miss cancellation deadline
Require 30-60 day advance notice to cancel; calendar the date immediately on signing
Copying clauses from Google without understanding them
Boilerplate from the internet may not be enforceable in your jurisdiction or may create unintended obligations
Use a template reviewed by counsel in your jurisdiction; understand every clause before pasting
No governing law clause
Court selects governing law, often unfavorably
Always specify governing law and preferred dispute resolution forum
Gotchas
Residuals clauses gut NDA protection - A residuals clause allows the receiving party to use "information retained in the unaided memory of persons who have had access to confidential information." This effectively means any employee who read your confidential material can freely use it later. Always review NDAs for residuals clauses and strike or narrow them aggressively.
"Termination for convenience" asymmetry - Many vendor-drafted contracts include termination for convenience for the vendor but not the customer, or require 90-day notice from the customer but allow the vendor to terminate with 30 days. Review termination provisions for symmetry and ensure the notice period is practical for your transition timeline.
Auto-renewal with a short cancellation window - A contract that auto-renews annually with a 60-day cancellation notice is effectively a trap for busy teams. The renewal date must be calendared on signature day. A single missed deadline locks you in for another year.
"All IP created for customer" in MSAs - A customer-favorable MSA clause claiming ownership of all IP created during the engagement may inadvertently claim ownership of improvements to the vendor's core platform. Always carve out vendor's pre-existing IP and general platform improvements before agreeing to broad work-for-hire language.
Governing law ≠ dispute resolution venue - A contract can specify California law governs but require disputes be resolved in New York courts. These are separate clauses. Check both; agreeing to the counterparty's home jurisdiction for litigation is a significant concession.
References
For detailed clause language and plain-language explanations of common provisions:
references/clause-library.md - Common contract clauses with plain-language
explanations, market positions, and negotiation guidance
Only load the references file when the user needs specific clause language or
detailed negotiation guidance on a particular provision.
Companion check
On first activation of this skill in a conversation: check which companion skills are installed by running ls ~/.claude/skills/ ~/.agent/skills/ ~/.agents/skills/ .claude/skills/ .agent/skills/ .agents/skills/ 2>/dev/null. Compare the results against the recommended_skills field in this file's frontmatter. For any that are missing, mention them once and offer to install:
