Watertight contracts for choppy waters

Doing business in the UK and beyond has recently been somewhat challenging and we have seen first-hand the difficulties facing businesses as they navigate some pretty choppy waters.

Whether it being unstable consumer spending, inflation and cost pressures or general market and economic uncertainty, the impact has been significant.

While it may be a case of ‘of course you would say that’, we found those businesses who had their ducks in order, with clear contracts, were better prepared in navigating uncertain or challenging circumstances.

Despite these challenges, businesses have remained optimistic about both their trading prospects and the wider economy. The companies that will succeed are those able to capitalise on this optimism and have contracts that provide both stability and the flexibility needed to adapt and thrive.

The latest Lloyds Business Barometer shows business confidence edging upwards, with July 2025 reaching 52%, the highest level since November 2015 and an 11-month high. This follows a decline in April, which was largely driven by concerns over global trade tariffs.

We were both told many years ago that your contracts should be viewed as a business’s sword and shield. Without overplaying the simile, a watertight contract becomes a useful asset when trying to enforce a particular right but equally a robust shield when defending a claim or alleged claim.

In this article we look at what businesses should be considering when looking to make their contracts watertight and, in particular, what contractual clauses should be reviewed or strengthened.

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 aware of when your contract renews, and any minimum notice required to terminate the contract.

Force Majeure

Stop looking at this as a ‘standard’ or ‘boiler plate’ clause. It shouldn’t just be seen as ‘something outside of a business’s control or a get out clause’. We have seen many businesses stung by it. Clearly define what should constitute ‘force majeure’ and the consequences of it.

Price and payment terms

Given the difficulties in the current economic climate, ensure that payment terms are still suitable for your business and weigh up 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.

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 to ensure it still has the financial resources to satisfy its liabilities under the contract. Make sure the insurance documents they have supplied are current and reflect the coverage they have declared to you.

Termination

Whether a business relationship is going well, or not, it’s 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 insolvency.

Dispute resolution clauses

If you’re working internationally, don’t just copy and paste your dispute clauses. Pick the right law and dispute process for your deal, and make sure you know how it’ll play out if things go wrong.

Make sure you’ve got options if things don’t go to plan. Build in cure periods, step-in rights, and ways to end the contract with minimal upheaval. This can save relationships, limit your losses, and keep your customers happy, even if you have to make a change.

Compliance

Compliance isn’t just about bribery or modern slavery anymore. You might need to promise to meet ESG goals or net zero targets. Make sure you know what you’re signing up for, and what happens if you miss the mark.

In today’s unpredictable business climate, having robust, well-drafted contracts is no longer a luxury, it’s a necessity. From pricing mechanisms to dispute resolution clauses, each element plays a critical role in protecting your business and enabling it to adapt.

While optimism remains strong among UK businesses, those best positioned to succeed will be the ones who treat their contracts not just as paperwork, but as strategic tools, both sword and shield, for navigating whatever lies ahead.