Sorting out the small print
Posted by Rachel Flower / April 22nd, 2020 / No responses
We’ve been running a series of online seminars this month about how to manage the wide range of commercial and contract issues which have emerged for small businesses at this time.
A huge range of challenges have arisen as a result of the pandemic, with businesses having to pull out contracts and dust them off to search out the clauses which may either help or hinder their financial and commercial position. I’ve never known people to be so interested in the force majeure clause or the doctrine of frustration!
Of course, the questions they really want to ask are much more fear-driven.
Will my business survive? Where is my revenue going to come from? Will my customers keep buying from us? How can I recover my losses? What do I need to do to make this right?
Historically at Serenwood we’ve sometimes find it difficult to persuade small business owners to take a proactive approach to getting solid foundations in place for business growth. More often than not, we find business owners like to cut corners on the legal stuff *until something goes horribly wrong of course*.
And this pandemic has been the perfect storm of that “horribly wrong” situation.
Much as we love helping you get out of hot water, we much prefer getting you onto solid ground ahead of time. And with that in mind we are re-launching some of our online offerings at an even more affordable rate so that small business owners on tight budgets can get access to help at this time.
So in coming weeks you’ll see me promoting our “Legal-Easy” online solution. It’s an online membership group specifically for small business clients, giving you access to contract documents essential for your business, options to access us for support at preferential rates, an ongoing training and education programme about the important elements of business growth, and a community to connect with other like minded business owners who are intent on protecting their business at this time. It officially launches 7th May so watch out for it.
An example of a topic we’ll be covering is “the most important things to check when you’re signing up to a contract”. I’ll popped a little summary below, to whet your appetite!
The main take-away message from this blog post is to reiterate that contracts DO NOT have to be scary, mystifying beasts. They are simply a really important part of doing business, and as small business owner you need to have something in place to protect you and your customers. It’s just a way to make sure the parties are aligned, in agreement, and committed to doing great business together. If contracts scare you – you’re not on your own. The Legal-Easy solution is going to take the pain away. We love commercial contracts (we’re weird, I know, but it’s honestly just an amazing way of building trust between business and customer and suppliers).
HERE WE GO!…..
(Download as a neat PDF here)
1. Correct party names and details (e.g. registered company numbers and addresses), and correct signatories with authority to sign.
2. Are there any blank areas or drafting notes left in the contract which need completing.
3. Check the basic terms e.g. duration, clear definition of products or services, the all-important price and payment clauses. Will the delivery and payment cycle work for the cash flow of your business? Is it a fixed price, or flexible price, or is there a right to vary price or re-negotiate price or re-negotiate if costs change? What is the method and timing of payment? Is there interest on late payments? What about right of set-off? Above all – does it accord with your understanding of what has been agreed and what your business needs?
4. What are the timings for performance by each party (and are they realistic and achievable?) What are the penalties or triggers within the contract for non-performance (and what risks are attached?) Check carefully what rights arise in respect of defective goods or services, and how they will be dealt with. Are there any rights to suspend supply or performance in the event of non-payment?
5. Identify any guarantees or indemnities within the contract. Ensure that you understand what you are agreeing to. You should try to limit any indemnities (e.g. where you are agreeing to protect the other party from liability or loss). Watch out for “hold harmless” clauses.
6. Locate and check any warranties and representations. You should carefully check the wording, and attempt to limit liability wherever possible, and watch out for any disclaimers or limitations from the other party.
7. Limitations and exclusions of liability – liability to another party can be limited to a specified amount (such as the price paid under the contract). Are these suitable for your business and compatible with your internal policies such as insurance?
8. Check whether the contract makes reference out to any other documents (“Incorporated documents”) because you need to get hold of a copy of them as they will form part of the overall agreement.
9. What are the remedies provisions and work out “what is the worst that will happen if we default on this contract”? Look for ways you can limit your exposure here.
10. What are the rights of termination for each party? How can you exit the contract if you need? What notice will the other party give you if it needs to exit, and what costs will be involved?
11. Check that all dates and deadlines generally within the contract are clear and as agreed
12. Requirements to maintain insurance policies. What is the framework for governance generally, e.g. reporting and compliance activities. There are often hidden costs here and the level of information sharing must be proportionate.
13. If it is a contract for goods – check for transfer of risk (when supplying goods, the risk of loss or damage can be transferred to the other party on delivery so that even if they are destroyed that party must pay for them) and retention of title until such time as payment for goods has been made (it is possible to retain ownership, even if they have been delivered, allowing recovery of them if the other party fails to pay.)
14.What happens in insolvency? – if the other party becomes insolvent, future goods or services may be cancelled without incurring any liability and provide that all outstanding sums fall due immediately.
15. Dispute resolution – what does the contract say about methods of dispute resolution and try and keep this flexible. Consider alternate dispute resolution (ADR) to avoid expense of court based dispute resolution as a first option.
16. Jurisdiction and governing law that will apply to disputes – ideally the laws and courts of England and Wales will apply so you are familiar with the system that will govern disputes and avoid the cost and inconvenience of fighting in foreign courts. If another law is stated you will need to understand more about the risks of agreeing to this.
17. Have fun and don’t forget to use a brightly coloured highlighter pen!
Let us know if you like the sound of the Legal-Easy online solution.
Rachel (hello@serenwood.co.uk)
