Key pitfalls pre and post contract signature
As inhouse lawyers building long term relationships with our clients, we see patterns emerge in terms of the type of circumstances that can lead to an issue or dispute arising once a contract has been signed. These circumstances span from the very start of the contracts process when the parties are agreeing the main terms through to the performance and management of the contract post signature.
Some of the points below are aside from what’s written in the contract. This is because, whilst what the contract says is normally the final word on the position (and is therefore very important), the parties’ understanding of the contract and their expectations are still very relevant as they play a big role in how things will go and the parties’ relationship post signature. Where an issue arises, even if the parties are aligned on what the contract says on the particular matter (which is by no means a given), misunderstandings, ambiguities and sneaky drafting breed resentment and distrust and tend to do no-one any favours in the long term.
Goods/services – are you getting what you expect / does the customer know what it wants?
The importance of ensuring the specification is comprehensive if you’re the customer or sufficiently caveated if you’re the supplier can’t be overstated. For example, IT disputes are common and they often hinge around what the specification does or doesn’t say. If you’re the customer, , note down the essential must haves then cross-check them against the specification – it’s surprising how often they’re not there. If you’re the supplier, ensure your own specification is used and takes precedence over any conflicting documents. If the customer has used the incumbent supplier for a long time, work closely with them to ensure you understand the full extent of what’s required as the customer may take a lot of it for granted. Tests/pilots/trial periods are an invaluable way to flush out problems before they arise. Similarly, whilst it’s a tedious job, mapping out the roles, responsibilities and processes pays dividends often teasing out issues and costs that no-one has thought of.
Cost is king
Do both parties understand the rate card including cancellations/refunds/surcharges/the scope for any additional costs? Do both parties understand the circumstances when prices can increase and their rights (if any) if there is a major change in the market? Unsurprisingly, disputes over what is and isn’t included in the rates and the circumstances when a supplier can increase their costs are very common. To correct a common misconception: force majeure cannot be relied upon to get out of a contract solely because it is commercially unviable.
Bargaining power v unreasonable conduct
Where there is a large discrepancy in bargaining power, it’s advisable for the dominant party to ensure the other party understands the terms it is signing up to and can realistically accommodate them. It is rarely in a party’s interests for the partnership to fail and playing hardball with harsh contracting terms tends to have reputational consequences eventually.
Beware of bespoke offerings
When a business is doing something for the first time, there are inevitably many pitfalls – ensuring the pricing is correct, implementing new systems and processes that haven’t been tried and tested, failing to consider many aspects that the business is not used to thinking about such as insurance implications, health & safety issues, additional training requirements etc. Throw time pressure into the mix and the risk is significantly heightened. Having a project manager to keep checklists, involve the appropriate people and oversee timeframes mitigates this risk. Having a second pair of eyes to sense check key decisions is also sensible. Finally, having a culture where internal concerns and dissenting views can be put forward and meaningfully considered can prevent foreseeable disasters and make staff feel valued.
Having the right people involved
Sometimes, key staff can be left out of large projects due to workload or as an oversight. This may be encouraged by the staff member if they have an inkling that things are going to go wrong and fear being caught up in the collateral damage. This is clearly a situation to be avoided – it goes without saying that having the right people involved is fundamental to the project’s success. Businesses with a culture which encourages staff to raise concerns about projects (as mentioned in point 4) reduces the chance of key staff allowing themselves to be excluded when they have important insight to offer.
If you are not contracting on your standard terms and conditions or are offering something different to your standard offering (as per point 4), it is very easy to miss a key commercial, operational or legal term out of the contract. Cross-checking the terms and the schedules (especially the specification and charges schedule) is essential. You should also consider the most likely way the project could all go wrong and ensure this is mitigated as far as possible on the ground and that you are satisfied the contract covers it sufficiently. It’s surprising how often businesses could have predicted the area where there was going to be a problem yet sufficient time was not dedicated to preventing it arising. But then, it’s real life and there are always competing priorities that require time and attention.
More haste less speed
Time pressure seems to be synonymous with contract negotiation and there are often good reasons which necessitate a fast pace but inevitably, the greater the rush, the greater the risk of things going wrong. Wherever possible, having a break of a couple of weeks and re-visiting the negotiations with fresh eyes often results in important changes and clarifications being made which otherwise wouldn’t have been spotted.
Post contract signature
There are normally things that need to be dealt with when a contract has been signed such as ensuring accounts know the payment terms, operations understand the service levels and how they’re calculated and any conditions subsequent are satisfied etc. It’s really important that someone has responsibility for assigning these actions and ensuring they are followed up and transferred when a member of staff leaves the business.
One of the most common questions inhouse lawyers get asked is ‘How can I get out of this contract?’ Often, there is no quick exit route. But in many cases the business could have accrued the right to terminate the contract by this time if the supplier had been managed in accordance with the terms of the contract (or, the supplier’s performance may have improved and the relationship salvaged meaning termination was not required in the first place). Therefore managing the supplier’s performance serves multiple purposes. I appreciate that in many businesses, time and resources are tight and there simply isn’t enough time in the day to get everything done so tasks at the lower end of the priority list (like monthly meetings with the supplier) are put on the backburner until something goes badly wrong. The key thing is to ensure that the supplier’s performance is being measured and you are receiving the regular reports. Then you can start managing the supplier as soon as performance starts to dip and you don’t miss any opportunities to salvage the situation and to start to build up the necessary threshold for a subsequent termination of the contract should it be necessary.
Where an issue or dispute has occurred, the best way to avoid it happening again is to have an open culture (as far as possible) about what went wrong and embed safeguards into your systems and processes to ensure it isn’t repeated. Otherwise, staff turnover means there’s a very real risk of mistakes being made twice.
At My Inhouse Lawyer, we are invested in our clients’ long term success and as experienced inhouse lawyers, we have seen first-hand the downside to an approach which focuses too heavily on point scoring in negotiations without understanding the wider implications and the parties’ longer term aspirations. We understand that our clients’ success in any project goes far beyond the specifics of the contract and that businesses need pragmatic and commercially minded lawyers to help them achieve a result which works for them without creating problems further down the line.
Written Kate Fazarkerley
Principal at My Inhouse Lawyer
One of our values (Growth) is, in many ways, all about cultivating a growth mindset. We are passionate about learning, improving and evolving. We learn from each other, use the best know-how tools in the market and constantly look for ways to simplify. Lawskool is our way of sharing with you. It isn’t intended to be legal advice, rather to enlighten you to make smart business decisions day to day with the benefit of some of our insight. We hope you enjoy the experience. There are some really good ideas and tips coming from some of the best inhouse lawyers. Easy to read and practical. If there’s something you’d like us to write about or some feedback you wish to share, feel free to drop us a note. Equally, if it’s legal advice you’re after, then just give us a call on 0207 939 3959.
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