How sound are your business contracts?
As business people we all appreciate the importance of commercial contracts. Having won a new client it’s crucial that your terms of business, and theirs, accurately reflects the deal that you have agreed
Contracts are the cornerstone of all business
The reality is that contracts are the cornerstone of all business and cover every transactional relationship – whether they are in writing or not. The purpose is to set the expectations for both parties and, should a dispute arise, set out how it should be resolved. Unfortunately the terms of a contract are often only examined once parties are in dispute, when it is too late to do anything about it. You can expect little sympathy from the courts if you do not comply with your own contract. If you are working in a business to consumer environment you need to ensure your business operations and contracts comply with the relevant law and regulation. This article focuses on business to business contracts, though the underlying principles still apply.
The nitty gritty…
A good contract will set out the key points of ‘who, what, where, when and how’. Who is providing what to whom? Where will the services be provided/ goods be delivered, in what timescales and how will they be delivered? The next issue to consider is the price. How much is being paid and by when? What are the agreed payment methods and terms and, more importantly, what are the consequences of non-payment? For example, if your interim invoices are left unpaid you will probably want to suspend delivery of any further products or services. However, you could find yourself in breach of contract if you do not have the ability to suspend service as a term of your contract. In contract law, two wrongs do not make a right. You should also consider the standards to which services will be provided or the quality of the goods that are being delivered. Are any warranties being offered? If a customer has a concern how will they raise it with you and how does it get resolved?
Don’t be a liabilty
One crucial aspect to consider is liability. From a supplier’s point of view you will want to limit your liability as much as possible and protect your business from open-ended damages. The courts take a fairly strict approach to limitations of liability – they need to be reasonable and fit the circumstances of each contract. Therefore, simply copying somebody else’s terms and conditions could render a limitation of liability ineffective. If a judge finds the limitation of liability unreasonable, he/ she will simply strike it out, leaving no contractual limitation whatsoever. If your business faced a substantial claim would your contract offer you sufficient protection? In a recent £650m claim against a company providing office and conference facilities the court found that their limitation of liability of just £50,000 was reasonable and would apply – a good example of how sound contractual terms and conditions can protect a business. Never assume that all contracts are standard.
Check your contracts carefully and make sure that they reflect what you are intending to supply or expecting to receive and above all offer you adequate protection.
Andrew Heeler is an accomplished corporate lawyer and partner at Hegarty LLP Solicitors. As head of the Company Department Andrew can advise on all aspects of Corporate Law from acquisition, mergers and disposals, shareholder and partnership agreements, group restructures to IP and data protection. To discuss an aspect of your business please call Andrew on 01733 295 661 or email