This clause rewards the other party with extra money if they exceed agreed targets—for example, a supplier gets a 5% bonus if they deliver 10% faster than required. It matters because it creates incentives for better performance and can reduce disputes (both parties want the same outcome). However, it can also backfire: if the bonus is too generous, you're overpaying for what should be standard service, and if it's unclear how it's measured, you'll argue about whether they earned it. The legal principle is "consideration"—both sides must gain something, so bonuses should feel fair to both parties.
Only offer bonuses for genuinely exceptional performance that benefits you significantly, not for meeting basic requirements. Make the measurement crystal clear—specify exactly how it's calculated, who measures it, and when it's paid. Avoid open-ended bonuses; cap the total amount they can earn so you know your maximum cost. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause rewards the other party with extra money if they exceed agreed targets—for example, a supplier gets a 5% bonus if they deliver 10% faster than required.
Why should I care about this clause?
It matters because it creates incentives for better performance and can reduce disputes (both parties want the same outcome).
What are my options?
However, it can also backfire: if the bonus is too generous, you're overpaying for what should be standard service, and if it's unclear how it's measured, you'll argue about whether they earned it.
How does this affect small businesses?
The legal principle is "consideration"—both sides must gain something, so bonuses should feel fair to both parties.