1. Why should I review contract or terms and conditions?
Whenever you sign a contract, you are committing your business to delivering your obligations under the arrangement – and agreeing what the consequences will be if either party is in breach.
Carefully reviewing a contact greatly reduces the risk of dispute, ensures you get what you expect out of the arrangement, and makes sure you have clear recourse if something goes wrong. All of this protects the value you have built up in your business.
2. How should I review a contract if I am the customer?
If you are buying goods of services from another business, the contract should ensure that you get what you paid for, as described, within an agreed timescale. Ask yourself these questions:
- Does the contract contain everything you’ve been promised? Ensure the contract is clear about what you’re ordering and link to a specification or description. This is not just about what is being supplied – also consider support after the sale, the timing of supply, and service levels.
- Is the price clear and unambiguous?Be sure to check what is included and excluded from the price. Can the supplier increase the price for any reason, and is that fair?
- Is there a commitment to quality? Check what commitments are made around the goods or services that you are purchasing – and whether there is a clear mechanism to deal with any issues.
- What does the contract say about the timing of delivery/performance?Is there an absolute commitment, or just an estimate? What should your rights be if they don’t deliver on time?
- What about intellectual property rights? If your supplier might create intellectual property rights as part of any services (for example computer code, website copy, or documents), does the contract confirm that ownership in the intellectual property rights will transfer to you? <See our Intellectual Property Business Matters section for more on this and other IP issues>
- Is there a limitation of liability? This protects the supplier if a contract goes wrong. Check if there is one – if so, is it set at a reasonable level given the loss you might suffer if the contract goes wrong?
- How can you and your supplier terminate the contract?Check that you have at least a right to terminate for a material breach of contract, but also consider if you need the right to terminate ‘for convenience’.
3. How should I review a contract if I am the supplier?
If you are the party required to deliver the goods or services, it should ensure you will be paid the amount you expect, on time, and that you are covered if you are unable to deliver due to circumstances beyond your control. Ask these questions:
- Is the contract clear? Does it detail exactly what you’re supplying and what you’re committing to?
- Does it exclude previous correspondence? The contract is the final word on your agreement, and previous negotiations and conversations shouldn’t be used against you. Ensure it contains a statement that excludes any statements made or documentation shared with the customer during the sales process.
- Is the price clear and unambiguous?Does the contract make it clear what is included and excluded in the price? If you might need to increase the price at any time during the contract, is this stated in the contract?
- Is the contract clear about the quality of the goods/services/software you’re supplying?Check carefully – and think about anything that needs to be excluded from this quality commitment.
- Is there an absolute commitment to supply/perform on time? If so, any delay will be a breach of contract, potentially entitling the customer to terminate the contract and claim damages. It’s preferable to change this to read that you will use reasonable endeavours to supply on time. For more on the meaning of reasonable endeavours see our article here <link>.
- Who will own any intellectual property? Does the contract state that intellectual property you provide will be owned by the customer, and is this acceptable to you? If you’re likely to need to use the IP with other customers or if it’s IP belonging to a third party, you will need to make a change to the contract.
- Does the customer require you to provide any indemnities? If so, are they targeted at issues within your control and for which it’s fair for you to be responsible?
- Is there a limitation of liability clause? This can cap your risk if you breach the contract, so it’s standard commercial practice to include one – the trick is agreeing the right level for the cap. It’s also a good idea to exclude liability for a suitable list of ‘consequential losses’ where you can.
- Are you comfortable with the ways in which your customer can terminate the contract? Check that you have sufficient rights to terminate for failure to pay and where the customer’s financial health is suffering.
4. Can I make the other party change their terms?
If the above checks have highlighted any issues, or you spot anything else in the contract that you’re not happy with, you can ask the other party to change their terms.
Whether they agree to your request will ultimately come down to the balance of power – but there’s no harm in asking.
Focus on what’s most important to you, and clearly explain why you feel the change is needed. If the other party doesn’t agree to the change on something that matters to you, the deal might not be the right one for your business.
5. Seek specialist advice.
There are always risks in any contractual scenario, whether you the customer or the supplier. The above is a list of provisions which will apply to all suppliers and contracts but there is no one-size fits all contract – beware of templates, or of re-using contracts from previous arrangements.
There will always be contract-specific or industry-specific issues to consider on top of the usual ones. A commercial contracts specialist will help you identify these and give you peace of mind.
Would you like to know more?
Thrings Commercial team helps businesses thrive by providing practical business advice from commercial specialists.