If you run a business, spending time drafting and reviewing contracts is unlikely to be at the top of your agenda, but they are crucial elements that can drive, protect and improve your company as well as raising its reputation in creating respect for the way you approach negotiations and the completion of commercial agreements.

Contracts document the relationships between parties for the supply and receipt of goods or services or even goods and services combined. The dangers of not having a clear and valid contract in place are:

1) Personalities and relationships change and cannot any longer be relied on as new people get involved in the supply of goods and services who have a different view of the “deal” and the respective obligations of the parties.
2) A current trend in the law that interprets actions emails and conversations as being the basis of the contract that could well be construed to your disadvantage and not be in line with what was originally intended.
3) Each party’s perception and expectation of the delivery of goods and services differ so that on completion one party believes that the other has not fulfilled its obligations.
Clarity is vital in the contract wording and its descriptions of terms on which goods and services are to be supplied and received.

Understanding the terms of contracts you enter into enable you to manage the relationship as the contracts progress and spot actions and omissions which may become a problem under the contract before they “explode”.

One of the fundamental mistakes made in documenting business relationships and creating contracts are phrases which “agree to agree”. Leaving a lack of clarity on issues relating to the supply of goods and services or the delivery of goods and services can then be again misconstrued and place an obligation on one of the parties to accept the reasonableness of terms and conditions which was not their intention.

To be clear if both parties agree then the terms of a contract can be varied by that mutual agreement. There is never a need in a contract to incorporate wording that says that the parties may agree to vary it because all that does is place an onus on the people to come to an agreement rather than maintain their discretion not to vary the contract.

As business owners you will have a variety of contractual relationships with employees, contractors, suppliers, customers/clients and other third parties.

Whether they are “click to accept” terms on your website or printed on the back of an order form your standard terms and conditions are the unsung saviours of your business. They give your clients clarity about what to expect when they work with you.

Other key contracts that most businesses will have in place will include:

  • confidentiality agreements/ non-disclosure agreements
  • service level agreements
  • sales contracts for the supply of services and goods
  • partnership or shareholder agreements
  • employment contracts
  • contractor and subcontractor agreements
  • website agreements
  • privacy policies
  • licences
  • letters of intent
  • software supply and distribution agreements
  • framework agreements and statements of work
  • purchase agreements and lease agreements relating to property
  • loan agreements and financial agreements for the supply of funding
  • agreements relating to intellectual property rights

Key Terms

It’s important to make sure your contract terms are specifically written for your business, so avoid the temptation to copy someone else’s terms as their business is different and their terms may not be legally valid in your case. If you don’t specify terms and conditions, you put yourself at risk of uncertainty and misunderstandings – it’s vital to establish the actual arrangement between the two parties involved in any deal.

The most important aspect of any contract is to ensure that you fully understand all terms in the contract before you sign it. Many business owners have gotten themselves into sticky situations because of not reading a contract properly. If you have signed agreements with other business entities you need to know whose terms take precedence – theirs or yours? And are the details fleshed out or just contain overarching principles? You need to understand who it is you are actually contracting with (company, individual, partnership) and for how long.

Key terms include:

  • How can you/ they terminate a contract?
  • Who is doing what and when?
  • What goods and/or services are included or excluded?
  • What is the process for delivery
  • Are there any minimum standards and who decides if they have been met?
  • On what basis is everything charged (advance or arrears) and what happens if someone defaults?
  • Who will own what?
  • Is confidential information protected?

Hopefully, you’ll never have to take legal action based on the contract, but even after an agreement comes to an end it is important to keep a copy on file for several years in case a later issue should arise.

As a supplier it is vital that the contract not only documents your obligations but also the customers obligations. It is very easy for a contract to focus on the suppliers obligations but there needs to be protection for a supplier that identifies what a customer must do to enable the supplier to deliver and a provision that says the supplier will not be in breach if that breach results from a customer being in breach of their obligations.

If you do nothing else…

The whole idea is to get legal protection for your business and its resources as your business grows. Know your contracts and ensure they reflect changing realities. Timetable key dates to avoid unnecessary costs that could harm your business and let your contract help manage your relationships rather than simply govern them. Make sure contracts add value and protect your Intellectual Property.

Sadly, it is often not until something goes wrong that many people appreciate the true value of a contract. Resolving these issues can be extremely costly in terms of time, money and stress whereas having a well drafted legally binding contracts in place would have been cheaper, simpler, and eliminated these problems in advance.

If you would like to know more about the contracts you should have to protect your business, or would like us to review the terms of a contract before you sign, please contact Malcolm Head on Tel: 0118 920 9490 or Email: malcolm@thpsolicitors.co.uk