Does your contract say what you think it does?

Price inclusive of VAT

In a high value public services tender, it only became clear to the software supplier – only minutes – before signing the contract that the price in the contract was in fact inclusive of VAT, immediately reducing their profit margin by a whopping 20%. The public authority was a key client for the software provider and the agreed publicity following contract signature meant that the software supplier was willing to take the hit on this occasion (or felt they couldn’t back out).

“All being well, delivery shall be on 1 November”

In shipping contracts, precise shipment dates are normally treated as conditions. The above wording was included in a shipping contract but delivery was a month late. What was the meaning of “all being well” and did it excuse late delivery? (On the facts, yes). It was held that it made the clause ambiguous and that the delivery date could not be relied upon as a condition. On a close review, I think most people would see why the inclusion of ‘all being well’ qualifies the obligation to deliver on 1 November (it’s like saying, if everything goes to plan) but in the heat of negotiations it’s easy to miss it.

This is the sort of term that would be included in a services specification or SLA which are normally drafted by stakeholders even when lawyers are involved. It’s important to remember that once agreed principles are put into the schedules, the exact wording needs to be carefully reviewed as they are just as important as the body of the contract.

Annual price increase “up to” 3%

Following the conclusion of a very complex and contentious contract negotiation for professional services that spanned several years, when the contract was pulled out of a drawer 12 months later, it turned out that the level of the annual price increase was in fact not set in stone and was subject to negotiation. The words ‘up to’ had been sneaked in at the end with the effect that the professional services provider was not going to get the automatic annual 3% price increase that it was banking on. The level of increase it would achieve each year would inevitably depend on how much the customer needed the supplier’s services, given that the supplier could utilise its right to terminate for convenience if they couldn’t reach agreement. This was far from ideal for the supplier who had budgeted for the fixed increase and had no wish to terminate the agreement.

The moral of these stories: read the contract carefully, read key clauses twice at each stage of the negotiation and wherever possible, get a second pair of eyes to review the final wording.