Doing business with big business

• Non-compete restriction

  A prospective customer may seek to restrict its SME suppliers from undertaking work for any entity that may be a competitor of such prospective customer. If such a provision cannot be deleted, “competitor” should at least be defined narrowly
  

• Non-solicitation

  One should check whether any mutual non-solicitation provisions apply. Such provisions would protect against the risk of a prospective customer seeking to solicit team members of the SME supplier

• Time & Materials vs Fixed Fee

  It is important to be clear as to whether fees are fixed or provided as an estimate based on an assumed timeline and scope of work. If fees are to be based on time and materials incurred, this would usually be described in the initial quotation and/or statement of work, overriding anything to the contrary in the Master Services Agreement. Check out also Pitfalls of fixed pricing by Fred

• Acceptance testing

  There will commonly be provisions giving the customer the right to “test” the services provided by the SME supplier prior to such services being signed off by the customer. In many cases, the customer sign-off will be linked to when fee instalments are payable to the SME supplier

• Liquidated damages

  Please note liquidated damages (i.e. penalty charges) may be imposed by the customer and set off against fees if certain deadlines are not met. Such provisions should be deleted if they are not applicable to the services being provided

• Customer termination without cause

  It is not uncommon for the Master Services Agreement to allow the customer to terminate the contract for convenience (i.e. without needing any reason or justification). Where this is non-negotiable, a sufficient minimum notice period should ideally apply to such termination for convenience

• Customer payment default

  Attention should be given to the SME supplier’s rights should a customer be in default of a payment instalment. Ideally an SME supplier should have the right to suspend services and/or terminate the contract within a short period of a customer being late on payment

• Liability caps

  An SME supplier’s liability for any customer claims arising from supplier breach will normally be subject to a cap. Supplier liability caps can range from 100% of the fees paid by the customer to a multiple of such fees or a fixed specified amount. There may also be certain claims that are not subject to a cap and could potentially incur unlimited liability. Ideally such liability clauses should be negotiated to provide the most favourable position for the supplier as possible. In any event, an SME supplier should have insurance in place to cover any such contingent liability

• Subcontractors/personnel

  Please note the customer’s prior written approval will commonly be required before any subcontractors can be engaged by the SME supplier in relation to the services. One should also check that the SME supplier will have the flexibility to make changes to the team delivering the services without approval from the customer

Conclusion

This article highlights a number of issues that SME’s should be mindful of when presented with the Master Services Agreement of a prospective big business customer. In many cases, there will be scope for negotiating some changes. Even if there is not, the most important thing is that SME leaders ensure they understand what they are signing up to and what this could mean in the worst-case scenarios.

If you’re negotiating a Master Services Agreement with a big client, and would like some help, please feel free to get in touch