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Spring clean your contract terms and conditions

9 March 2023

Spring is on its way. While you’re giving your home a spring clean, why not give your contracts a spruce too?

The importance of relevant and updated commercial contracts cannot be understated. Here, we offer some key tips and pointers on why it is a good idea to review and update your contracts.

Price and payment terms

Given the difficulties in the current economic climate, ensure that payment terms are still suitable for your business and consider how this may impact cashflow.

Consider if there should be any changes or updates to reflect how much the goods or services cost. This can often change over time.

Review your price-mechanism clause and ensure this is reflective of any updates or changes in the market. Most supply chains have seen a price-hike in some shape or form. A standard increase is often linked to inflation and a pricing index, but you may also decide to include a right to increase for specific factors, for example, the cost of raw materials going up.

Term and renewal

Check your contracts to see if they automatically renew on the same term that you signed up for. If there is such an auto-renewal, there will often be a minimum notice that you will be required to give prior to the contract auto-renewing. It is therefore important to get ahead and ensure you are clear on your position so you can make an informed decision on how you want to proceed.

Termination

If a particular relationship is going well – or isn’t – it will be important to review the termination position within the contract to see if you or the counterparty can ‘exit’ the contract at any time for convenience.

You should also familiarise yourself with what the other causes for termination are within your contract. Depending on the nature of the relationship, which may change over time, there may be a particular element of the termination clause which is relevant – for example termination for material breach.

Policies and handbooks

Many businesses require suppliers to adhere to certain company policies or handbooks. If these have been updated, you should ensure:

  • The particular policy or handbook has been validly incorporated in your contract.
  • Your contract enables you to amend or update the policy from time to time.

Insurance

If your insurance is up for renewal, check with your insurers that the terms of the existing insurance clause and other provisions in the contract do not nullify or invalidate the renewed insurance cover.

SLA’s, KPIs and performance reviews

How is performance measured under the contract? Is there scope within your contract to undertake a performance review? Consider reviewing agreed service levels and KPIs to ensure they are still relevant and accurate. If specific standards of services are not being performed in accordance with the agreement, consider implementing service credits.

Liability

Remind yourself on what your particular liability is under the contract. What does this look like in terms of numbers? If a limit on liability is included, consider whether the limits are still acceptable to the business and appropriate for the risks involved. You should also check to see if the business you are contracting with has sufficient insurance coverage – and consider requesting updated insurance documents – to ensure it still has the financial resources to satisfy its liabilities under the contract.

Updates to legislation

Consider if there are any updates to legislation or regulations which are applicable to your specific industry. Check to make sure the terms of your commercial contract do not fall foul of any revised legislation

Linking on to this, consider updates by relevant authorities such as CMA, the Competition Market Authority, as they often publish guidance on various matters which may impact your business and the industry in which you operate in – for example there is guidance on how businesses should manage their relationships with consumers in relation to consumer contracts. We would recommend such guidance being reflected within the provisions of your commercial contracts or certainly ensuring your commercial contract does not contradict such guidance!

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