Recently I wrote about the award of £80.5m against IBM for wasted expenditure. Not all contracts go before a judge. If a contract is well-drafted, it is often possible to keep a dispute away from court.
But nobody wants to read the small print or contract terms. Well, apart from the contract lawyers. Sometimes parties are in a rush to sign a contract and just want their lawyers to “do the legal thing”. In this case, there’s no point in trying to fix every bug or problem in a contract. The lawyer has to prioritise and confine to key risks. So what are the key issues parties should look out for?
1. Starting and ending the agreement
It might surprise you, but it is not always clear when the agreement is due to start. Nor how long it will run. These are basic problems with simple fixes. It is also important to remember that it’s easy to get into an agreement but sometimes hard to get out of them before the end date. Can you exit the agreement if the other party is in breach or becomes insolvent? Are there other pertinent grounds that should entitle you to walk away? If so, write that in. Are these rights one-sided or mutual? Can one other party exit without cause by giving notice? What if you want to renew the contract when it expires?
2. Basic obligations
It is important to know which party is doing what. Again, this is not always drafted well. Is the obligation to supply absolute, or will the supplier use best or reasonable endeavours? Is time of the essence for supply? Is this agreement exclusive? Is there an obligation of good faith on the parties? Are the obligations subject to a form of test or acceptance?
Obviously it is important to have clarity over payment terms and parties normally get this right. But sometimes it is not clear. Is the amount fixed or variable? A mixture? Is payment due in advance or arrears? Is payment conditional upon something happening?
4. Risk and liability
In my experience, this is often the section that needs most attention from the lawyer. It is important to answer basic questions. For example, when will ownership and risk pass from one party to the other? Will there be a transfer of intellectual property rights? Are obligations subject to acceptance by the other party and how does that change a party’s risk? Who is liable if something goes wrong and to what extent? Does statute imply protections? Are there express protections? Is there a limitation on a party’s liability and is it backed by insurance?
If you need advice, contact me email@example.com or +44 (0) 20 7611 2338.
This article first appeared on the Teacher Stern website.