11 Key points to consider before signing a commercial contract
11 Mar 2022
The corporate and commercial team at Harold Benjamin are frequently asked to review contracts prior to signature. This is sometimes a high-level review, or it can be a more detailed forensic analysis. Whilst for smaller, low value or low risk contracts it may not be economic to ask as solicitor to review the contract there are some key areas that should be considered regardless of value. Set out below are some of the key areas to consider before you sign on the dotted line: –
Check the names of the contracting parties are clearly recorded on the agreement. If a limited company, or limited liability partnership, ensure the agreement states the full name and importantly its registered number. Companies can change their names, directors and shareholders, but never its registered number. If the agreement is unclear about who is contracting it can make enforcement very difficult.
2. Due diligence
If the contract is over a certain value you may want to consider putting in place checks to understand the trading history or financial strength of the party you are contracting with. You may find information at Companies House or consider using credit reference agencies who can provide you with a company report. If you are not content with your findings consider using another provider, or mitigating the risk such as through a parent company guarantee, directors’ guarantee, performance bonds or insurance. If a guarantor is provided check they are able to cover any liability. Another additional and more practical approach may be to speak to existing customers.
3. Clearly identify the services or goods
The contract should make it clear what goods or services are being supplied. The specification of the goods and services should be clearly identified and provisions made in the agreement to deal with what happens if the goods or services do not meet your requirements, or are not delivered on time.
4. Term and Termination
Consider how quickly the agreement can be terminated and for what reasons. If you are entering into an agreement for a long term ensure you have an express provision to terminate if the goods or services fall below what is expected. Suppliers may want to tie you in for longer periods and/or include onerous early termination provisions, so consider break clauses, express fault or no fault termination provisions, or shorter fixed terms with options to extend.
5. Standard Terms and Conditions
If contracting on the other party’s standard terms and conditions do read them properly. A little time spent reviewing them can save a lot more time and money in the long run. If it is not clear whether your terms, or the other party’s terms, take priority then you should clarify.
6. Limit of Liability and indemnities
A supplier will normally try and limit its exposure under the contract by capping its liability. Consider whether any proposed cap is acceptable. If you have obligations under the contract such as providing an indemnity you should also try and ensure the indemnity is capped.
7. Ownership of Intellectual Property and other rights
The general rule is that where you are contracting with a third party any IP created by that third party will belong to the third party unless provided for otherwise. If you require ownership of IP or other property created as a result if your contractual arrangements, ensure that the contract expressly states that you will own it.
8. Regulatory Matters and Public Procurement
Where you are operating in a regulated sector, or are covered by public procurement legislation, ensure you have observed any restrictions or requirements.
9. Mediation and Alternative Dispute Resolution (“ADR”)
Consider including a mediation or ADR clause in the agreement. Mediation or ADR can provide a quicker and more costs effective method to resolve any disagreements. Resolution via the courts is never cheap.
10. Choice of Law and jurisdiction
This clause will specify the system of law that will apply and which courts or other method of dealing with disputes. If the contract is under the laws of another jurisdiction, you should consider asking a lawyer qualified in the relevant jurisdiction to advise.
The agreement should be properly executed so that is binds the parties entering into the agreement. Particular attention is required where the agreement is to be executed as a deed as both common law and statutory requirements apply.
If you need help with drafting a contract, or reviewing its terms, please contact James Oxley: James.firstname.lastname@example.org
If you have already signed on the dotted line and you are either in breach, or the other party is in breach, and you would like to know what steps to take next, we can also help advise on your options. Please contact Jeremy Lederman: Jeremy.email@example.com