THE BACK STORY

How To Spring Clean Your Client Contracts

While it’s clear to everyone, including me, that no one is ever eager to invest time reviewing their standard contracts, the EU’s recent experience with its vaccine supply contracts is a timely warning to us all to get on with this task. If you have (even partly) managed a dry January or a Veganuary, then could this be your next challenge?

FOLLOW THE MONEY

Look at the less convoluted clauses and follow the money. The key terms will usually be:

Price: ask yourself “what, is the price for the services, when will we be paid, and when and who can change the price?” The right to change the price may be clearly marked or it may be in a slightly less obvious place. Pay attention to any clause headed “Renewal” (it may say that the contract will automatically renew on a specified date on the same terms, which will include price) and to the clause headed “Variation”, which will deal, unsurprisingly, with variation and may apply to price.

Length of Contract/Term: whether the contract is profitable or unprofitable, the next issue will be “how long are we both tied to this contract?” Look for the answer in clauses headed “Term”, “Notice”, “Termination Provisions”. Confusingly, the length of the contract is called its “term”, and the clauses in the contract are also its “terms”.

WHAT COULD GO WRONG THAT I CAN FORESEE?

Consider what else, in broader terms, may go wrong. If you have a great business idea, fantastic staff and your company is very profitable, could a client copy your business? To prevent this you will need clearly drafted clauses dealing with confidentiality, prohibiting poaching of employees and prohibiting competition. There are limitations on how long and how wide the non-competition clause can be, but you can at least aim for a sensible level of protection.

You can also approach this issue with a clause clearly defining what intellectual property belongs to your company and expressly specifying that a client can only use it for limited purposes.

THE UNKNOWN UNKNOWNS

The pandemic has shown how unpredictable the future can be. Many companies have been reaching for their contracts to see what flexibility they have, both with supplies to their business and with delivery dates, when hit with unprecedented levels of disruption and staff absence.

The clause that may help in these circumstances is the “force majeure” clause. These often state what will happen in the event of industrial disputes, failure of utilities, acts of God, war, fire, flood and storm. However, they usually don’t cover pandemics.

In the future, if you are a key supplier to a client, you may find them taking a more practical and proactive angle to potential disasters by asking for a contract clause requiring you to provide copies of your business and IT disaster recovery plans, so that clients have the assurance that you can ensure continuity of the supply of your services in the event of another crisis.

WARRANTIES

An important current trend in contracts is to include clauses asking clients (and suppliers) to confirm that they do not breach laws on modern slavery, money laundering and sanctions. Whilst this will not be enough in itself to protect you if the statement does turn out to be false, it’s not a good look to be out of step with up-to-date practice.

INDEMNITIES

There is a very human tendency, particularly when busy, to skim over things that are tedious, convoluted and use unfamiliar words. Most people would put “indemnities” in this category. However, they can be extremely dangerous. Indemnities will deal with matters such as who bears the cost if something goes wrong and a third party sues. Do not inadvertently agree to bear all the costs of third party claims as these can be very substantial.

LAST BUT NOT LEAST

Finally, you may wonder, what is the position if clients click to accept your standard terms without actually reading them? Here there is some good news. The Law Commissions has indicated that click acceptance of contract terms is “almost certainly” likely to mean that they are binding, even where the consumer is not obliged to scroll through the website terms before clicking to accept.

Please note that this article is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author.

By Julia Weeks, an associate in the corporate team at Goodman Derrick LLP, the London law firm.