This note is the second part of my information blog which highlights some issues a business should consider during contract negotiations.
What happens if things go wrong?
- What could go wrong with the deal and what loss could the business suffer as a result? Consider all possible consequences. For example, could the business be prevented from fulfilling obligations to another company and face financial penalties as a result?
- If the business is buying goods and services under the contract, try to ensure that the seller is responsible for all possible losses and that liability is not limited in any way.
- If the business is selling goods and services, try to limit liability to a fixed sum. Damages for breach of contract may be far greater than the price and hard to quantify.
- Take legal advice before agreeing any clause that seeks to limit liability under a contract.
Is the deal time-critical?
- When does the business want the work done or goods delivered.
- A clear timetable is essential, especially if price is tied to delivery or performance dates.
- Does the business want to be able to end the contract or to impose a financial penalty if work or goods are delivered late?
In what circumstances might the business want to pull out of the contract?
- How long does the business want to be tied to the contract?
- Should the contract be for a fixed period of time or does the business need to include a right to terminate by giving notice to the other party?
- Are there any circumstances in which the business may want to terminate the contract immediately, for example, if the other party damages the business’ reputation or goes bust?
- Should there be a fee for early termination?
Are there any brand, copyright or other intellectual property issues?
- Is the other party creating something specifically for the business (for example, an advertisement or bespoke computer software)?
- Is the business going to use the other party’s brand or will the other party use the business’ brand?
- Take legal advice to ensure that the correct formalities are followed otherwise valuable intellectual property assets may be lost or infringed.
Is there a payment, performance or enforcement risk?
Remember that if anything goes wrong, the protections in a contract are only as good as the person giving them. If they have no money it will be very difficult to get any compensation. Consider requiring security (for example, a guarantee or retention).
Is the business dealing on standard terms?
- Most companies have standard terms of business drafted in their favour. If a business’ terms conflict with the other party’s, it will be difficult to decide which terms will apply.
- Be wary of purchase orders or delivery notes. These can have a party’s standard terms of business included on them. By signing a delivery note, the business may inadvertently commit itself to the seller’s terms.
- Always be clear about the terms on which the business is dealing. If in doubt, take legal advice.
Please call if you would like some advice about a contract you are thinking of entering into, the call is free and without obligation. Call Jane Latham: 01225 287516