Keeping your contracts fresh
Posted on April 4, 2014
When you started out, you probably had your lawyer draft standard terms and conditions to use with your customers. When did you last check that the terms were still fit for their purpose? How much has your business changed in that time? How do you know if a change in the law has affected your terms?
Our experience is that most clients do not check until they have a problem. By then, it is often too late. Putting it right is likely to disrupt your business, take up valuable resource and time, add pressure to your management team and may even damage your reputation.
Checking that your standard terms are current is a relatively painless task. That does not make it unimportant. Prevention is better than a cure…
Consider how much your business may have changed since you last looked at your standard terms.
New products and/or new services – your existing contract terms may not give you adequate protection for new products or services that you have developed.
New markets –if you have moved into new countries or plan to do so, you must check your contract terms. Your contracts should have terms to manage anti-bribery and corruption, conflict of law, anti-money laundering and trade sanctions.
Other factors can force a change in your standard terms. You should look again at your terms when one of the following occur:
New processes or business model – businesses evolve and change the way they do business. When did you last check the process for customer payment? Do the existing terms reflect your payment arrangements today?
Change in risk profile – contracts apportion risk. If your appetite for risk has increased or reduced, then you should show that in your terms. For example, in the light of experience you may soften certain terms that were previously too stringent to potential customers. Alternatively you may want to increase protection.
Another trigger is a change in the law governing contracts. Legislation can change contract arrangements between businesses. One of our previous newsletters discussed statutory interest for late payments – the law changed in March 2014 to allow business to also claim reasonable compensation and costs.
Each year dozens of cases decided by the courts change contract law. In the last six months alone, there have been important cases on limitation of liability, entire agreement clauses and the precedence of clauses in contracts. These areas, commonly called ‘boilerplate’, are often seen by businesses as standard and uninteresting compared to the main terms of the contract (price, description, quantity, delivery date, and so on). They are vital when it comes to enforcing the terms of an agreement.
The courts strike out illegal terms. They may declare the whole contract void if key contract terms are not current.
Striking out terms can be costly when counted in lost revenue. You do not want obsolete terms supporting large volumes of your customer business. Or jeopardise revenue by using outmoded contract terms. Contemporary terms of business are best.
As a general rule of thumb, you should review your contracts at least every two years. If one of the trigger points above occurs, then you should not delay. The law reports are full of people who trusted to luck rather than judgment and lost.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.