Contractual relationships are fundamental to the business world, but there isn’t always time to stop and think about the basic legal points. Investing time in these six steps now will help you keep the formalities in order, and reduce the likelihood of a dispute slowing you down.
1. Document (and read!) all agreements
This is an obvious point to make but, particularly in smaller businesses, or where the pace of change is fast, this step can be low on the list of priorities. Whilst the intention might be to deal with the formalities later on, that doesn’t always happen. The point might not be picked up until something has gone wrong and you are trying to figure out what your business (or your supplier/customer) should have done.
A contract doesn’t need to be lengthy or complex, but it should clearly set out the full extent of the terms agreed. If it doesn’t, there may be an argument about what the contractual terms are, and that will only make the dispute harder to resolve.
2. Reguarly review contractual documents
If there is a contractual relationship of any significant duration, the nature or extent of the goods or services you provide/receive is likely to change over time. Ideally your contracts will reflect those changes, but in reality this may not happen, or the changes may be so gradual that the need for change is missed. Changes might be something as simple as price increases or payment terms, however it isn’t uncommon for the entire business relationship to have changed over time to the extent that the underlying contract is virtually obsolete.
A periodic review of your contractual documentation means that any need for amendment is more likely to be picked up and addressed.
Make sure that any variations to a contract are agreed in accordance with the contract you want to vary. For example, the contract might require any variation to be recorded in writing and signed by both parties. If the proper procedure isn’t followed, your route to a remedy may be more complicated if things go wrong.
If the nature of the work to be carried out is likely to change over time, consider signing a master services agreement supplemented by project-specific contracts or statements of work. That way, the parameters of the overall relationship are agreed, but you can retain flexibility to agree more specific terms for individual projects.
If the project is a lengthy one, consider how best to record the timeline for achievement of the various milestones so that there is clarity about what is to be done and when.
3. Beware standard documentation
Standard terms and conditions have an important part to play in day to day business But if both parties to a contract are sending out documents which purport to incorporate their own terms and conditions (for instance, on the back of purchase orders or invoices) a “battle of forms” can arise which can make any dispute more complicated to resolve. You should therefore take steps to ensure that there is agreement at the outset as to whose terms and conditions take precedence.
4. Train your customer-facing teams
The bigger and more diverse the business, the harder it is to ensure that it is doing everything it has agreed to do and no more. Individuals on the front line of your business may well find themselves under pressure to promise more, either to capitalise on strong relationships/beat the competition, or to smooth over difficulties. If these added extras become the norm, expectations become higher and arguments may arise later about whether the contract has in fact been varied and whether your business is meeting its obligations.
5. Understand the boundaries
If difficulties do arise, communication will be key. However well intentioned, any “commercial” discussions which take place can directly impact the future path of any dispute (particularly if, unknown to you, the other party have legal advisors working behind the scenes). There is no such thing as “off the record”. Your discussions might be “without prejudice” or “open”, and there may be times when both kinds of discussion might take place at the same meeting. You must always be clear about the nature of any discussions which are taking place and record the salient points (which will ideally be agreed with the other party, even if the ongoing dispute itself can’t be resolved).
6. Seek early legal assistance
Early involvement of legal advisors can bring longer term efficiencies. That applies whether you are finalising contractual terms or looking to resolve a misunderstanding before it escalates. By viewing your legal advisor as part of your team, you can secure quick, focused and discrete advice to help you avoid unseen pitfalls and ensure the interests of your business are protected as fully as possible in the event that any dispute escalates.