Why the details of a contract are so important
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Jill Fryer is a Partner and commercial contract specialist at Harper Macleod LLP. Here she looks at some key considerations on the importance of getting contracts right.
For business of all shapes and sizes, contracts are likely to play a pivotal role in day-to-day operation and success. However, parties often get so caught up in the excitement of entering into contractual relations that little or no consideration is given to the mechanisms to be used for when things go wrong or how they will otherwise exit from the arrangements.
There is a common misconception that no contract exists where there is no written document, however an oral contract can exist between the parties, or where parties have acted in a manner that would suggest that a contract was in place. A contract can also be formed through email correspondence negotiating on the terms of goods and/or services.
However, entering into a written contract will remove any ambiguity and make it easier to prove what the contractual terms are. From a very basic perspective, a contract will clearly identify the parties involved and will allow them to set out important provisions, including what will happen in certain situations for instance where there is non-delivery/performance of goods and/or services.
Provisions that might be appropriate for one contract may have no relevance or place in another. Contracts between a business and consumer will have different requirements when compared to business-to-business contracts. Contract provisions may also differ vastly from “base” provisions, where the contract involves a public sector organisation, which will have a variety of additional requirements to satisfy.
Some of the most common contract provisions to consider are:
Goods and/or Services: a written contract should be appropriately descriptive about the goods and/or services being provided. In some circumstances it may be desirable to annex a specification of the goods/services;
Jurisdiction: what law will apply to the contract and any disputes? If the parties are in different jurisdictions (eg a Scottish company and a Belgian supplier) having jurisdiction dealt with appropriately will be of considerable importance;
Liability: the level of liability that each of the parties have under the contract will often be the most important contractual clause;
Payment: when and how will payment be facilitated (and what happens when there is non-payment of an invoice)?
Risk and Title: When will risk and title in the goods pass between the parties? Will this be upon delivery for example, or will there need to be some kind of acceptance test provided for in the contract?
Service Credits and Service Levels: where a service is being provided, the parties will likely want to agree on the required service levels (or response times) in relation to those services;
Termination: what happens at the end of the contractual relationship? This is a very important (and often overlooked) provision of any contract. It is likely that both parties to the agreement will have different ideas on what is appropriate (particularly where one party tries to limit the others ability to terminate at all);
TUPE: will the contract need to deal with the potential application of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE);
Data protection: be absolutely clear about the respective obligations in relation to the processing of personal data, and associated obligations;
Intellectual Property: what happens to IP created during the period of the contract and how each may use the other’s prior existing IP; and
Assignation and Sub-contracting: to what extent should the parties be allowed to engage someone else to fulfil their contractual obligations?
This is by no means an exhaustive list and the reality is that the contract will contain a whole host of other key considerations for the parties entering into it. If in doubt, make sure you consult a solicitor.
Jill.fryer@harpermacleod.co.uk
