Why your business' contracts must be fit for purpose
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IN the excitement of launching a product or service, or being awarded a much sought-after contract, it is easy to forget about the small print and the boring legal matters. The prospect of drafting, reviewing or negotiating commercial agreements is often a daunting and unwelcome task.
However, the truth is that too many businesses enter into agreements which are not fit for purpose, which can cost them dearly in the long run.
Here, commercial contracts specialist Jill Fryer highlights nine situations where it can be particularly important to look at the agreements your business has in place.
- New ventures. Are you about to expand into a new area or launch a new product or service? Appropriate contractual conditions with any agent, distributor or joint venture partner are crucial. Don't assume that contracts you have used in the past are necessarily fit for purpose.
- Contractual terms. What exactly do you think you have agreed with your customer or supplier? Determining whose terms of business apply and whether they have been varied over time, for example by verbal agreement, can be tricky. Ensure you have agreed an appropriate allocation of risk and liability and review your contracts regularly.
- Consumer protection. If you are dealing with individual consumers, have you complied with the extensive consumer protection laws to ensure your contracts with them are enforceable?
- Public contracts. Have you been awarded a contract by a public body? You should consider its terms carefully as the scope to change them may be limited. You also need to be aware that TUPE regulations may apply as a result of you winning this contract, meaning you could end up with employees you didn't expect or want. You need to check what contractual rights you have in this case.
- Dispute resolution. Disputes can arise in relation to a wide range of contractual terms – late delivery of goods, leakage of confidential information or services not as expected. Determining whether there has been a breach of contract and what you are able to do about it is important.
- Supply chain. Are you caught in the middle between a client who won't pay and a supplier demanding payment? It is important to ensure that the obligations imposed on you are imposed on any sub-contractors or agents you engage. The interaction between different players in the supply chain is crucial, particularly in the unfortunate situation where one player goes into administration.
- International. If you are trading across borders, you need to consider issues such as enforceability of contracts, compliance with local regulations and your tax position.
- Funding. If you have been asked to sign a grant agreement as a condition of receiving funding, be aware of what the obligations are. Obligations in grant funding agreements can be onerous and can outweigh the obvious benefits of funding. You also need to think about state aid – if the funding is illegal, you will be required to repay it.
- Intellectual property. Does your contract give appropriate protection for your intellectual assets and have you considered other measures such as trademark registration?
Jill is a partner within the dedicated commercial team of Harper Macleod and along with her colleagues works with businesses, individuals and organisations across the north of Scotland, advising on all types and size of commercial contract, including: agency, distributorship, supply contracts, joint venture and partnership agreements, grant funding contracts, licence and franchise agreements, website conditions of use and standard terms and conditions.
Jill also provides specialist advice from our Inverness office on issues such as competition law (including state aid) and public procurement law.
