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Time for a ‘Contract Spring Clean’?

13 February 2012

Our difficult economic climate continues to present challenges for many industries. However, as the push to get the economy moving gathers momentum, it is perhaps the ideal time for manufacturing businesses to get their houses in order, in preparation for an improved market in 2012. Commercial law specialist Rebecca Kelly, advises on the key areas that businesses should address to provide maximum protection in law and as this week's guest writer, she turns her attention to contracts - and their role in protecting your business.

In a sale situation, contracts are a priority in terms of due diligence,
writes Rebecca Kelly.  A good set of contracts together with a clear system for negotiating and agreeing contracts demonstrate that a manufacturing business is a well managed and efficient operation.  A good contract can also be a very effective mechanism for deterring and preventing spurious (and potentially costly) litigation. We recommend manufacturing businesses carry out a ‘spring clean’ of their standard contracts to ensure they provide the maximum possible protections. We also recommend that they examine their processes and procedures for entering into contracts to ensure (as often as possible) contracts are entered into on businesses’ own  standard terms.

Here is a list of our top recommendations for carrying out your ‘contract spring clean’:

Standardisation:  What, if any, standard contracts do you have for use with your suppliers, agents, distributors and customers?  If the answer is none, we recommend you instruct a solicitor to prepare those standard contracts for you. Standard contracts allow your personnel to become familiar with their terms, meaning personnel can negotiate contracts efficiently and effectively, often without the need to engage a solicitor to do the job.  Standard contracts also allow you to maximise protection of your business’ interests. 

Review and Update: The protection required by your business evolves as your business develops and as the law changes.  It is prudent to carry out regular reviews of your contracts to ensure your business’ needs are addressed and potential risks are minimised.

Protection: What are the risks you face as a business?  What do you produce or provide to your customers and what protection do you need if something goes wrong with your products or services? What do your customers need to provide to you to complete the sales process? Has your business been the victim of spurious complaints in the past? A little time contemplating these factors will enable you to identify the important points you need to include in your contracts.

Contracting process: What processes do you have in place for negotiating and concluding contracts? It is important that whoever is responsible for concluding your contracts is able to promote and protect your business.

Training and education Personnel responsible for negotiating contracts should have a basic knowledge of the contract formation process (offer, acceptance, consideration, intent). You need to ensure (as far as possible) that your terms prevail over those of a third party.  There is no point having excellent standard contracts if, due to a lack of understanding on the part of your personnel, you end up being bound by a third party contract. 

Critical points:  If you (and your personnel) are aware of what issues are critical to your business, you will be better placed strategically to negotiate your contracts.  Less important points can be negotiated away in favour of critical ones.

Rebecca Kelly is with the law firm hlw Keeble Hawson LLP

If you would like to learn more about this subject,  Rebecca Kelly can be contacted on 0113 244 3121. 

Les Hunt

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