Partner and Head of Commercial Team, Ann Fisher
Business on the increase – but beware of the small print …
As the economy starts to pick up, businesses are buying and selling more goods and services, Ann Fisher warns that you must beware of the small print. This business briefing is the first of a two part article highlighting the key issues a business should consider during contract negotiations.
Who is the other party to the contract?
What is the reputation of the other party? Have you done business with them before? If not, carry out a credit check on their financial standing. If the other party is based overseas, you should take legal advice to ensure that you are adequately protected if things go wrong.
Who will perform the contract?
You may require specific individuals to perform the services. Are you happy to allow the other party to sub-contract some or all of the work or pass on the benefits of the contract to others? If not, this must be spelt out.
What is being bought or sold?
The majority of contractual disputes relate to what services are to be performed or goods delivered. Describe the goods and services as clearly and accurately as possible to avoid risk of disputes.
What is the price and how is payment to be made?
If the price is not a fixed sum, it will need to be determined. If the price is linked to variable factors, what are the mechanics for determining the price? Is tax included in the price (notably VAT)? What are the delivery terms and are the costs included in the price?
What happens if things go wrong?
You need to consider all of the possible consequences if something was to go wrong with the deal and what loss could the business suffer as a result. For example, could the business be prevented from fulfilling obligations to another company and face financial penalties as a result?
Always take legal advice before agreeing any clause that seeks to limit liability under a contract.
Is the deal time-critical?
When should the work be done or goods delivered? A clear timetable is essential, especially if price is tied to delivery or performance dates. Do you 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?
Should the contract be for a fixed period of time or do you need to include a right to terminate by giving notice to the other party?
Are there any brand, copyright or other intellectual property issues?
Is the other party creating something specifically for you (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 your business’ brand? Legal advice should be taken 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 can be difficult to decide which terms will apply. Be wary of purchase orders or delivery notes as the business may inadvertently commit itself to the seller’s terms. Always be clear about the terms on which the business is dealing.
Taking advice at the right time can save costly mistakes and minimise business risk.
