12 practical tips to master your contracting

We’ve written many articles recently on topics that matter to commercial lawyers and to the business teams responsible for contracting. Our articles have covered subjects ranging from supply chain resilience, to MOUs and other preliminary agreements, and the National Security Act.

We want to focus now on 12 practical tips for contracting, which can be shared with the business teams who have authority to negotiate contracts.

1. Contracts are highly regulated, but the regulations don't cover everything

You might be aware that in the UK, there is a lot of legislation governing contracts. That legislation covers topics such as online selling, consumer rights, liability provisions, and the sale of goods and services. You should not though assume that the legislation in place is sufficient to protect your business. For example, in the case of services, you might engage a supplier to develop a website or create something technical and assume you will own the intellectual property rights in the supplier's output. In fact, the position at law is that the supplier will own the IP in the work it creates, unless you have a contract in place which says otherwise. Having a contract allows you to set out the terms of ownership and use of any new IP.

2. Use clear language in your contracts

The purpose of a contract is to have a record of what the parties have agreed. It is really important that your contract uses plain English and is written in a clear and unambiguous way so that all of the parties know what they are obliged to do (or not do). If something goes wrong, the parties need to have a contract which clearly sets out the agreed performance standards, and what the remedies are.

3. Make sure the scope of services and obligations is clear

The scope of the services and the description of the deliverables must be clear and comprehensive. Don't use jargon which means that the scope is unclear. Be wary of using catch all wording and assuming that it will cover the supply of something specific. If there are specific services or deliverables that will be supplied they should be fully described in the contract. Equally if there are excluded services then they should be specified too. Read through the scope carefully and make sure you understand what you are signing up to. If you’re the supplier, can you deliver everything that is in scope? If you're the customer, is it clear that the agreed price covers the full scope that you need?

4. Keep the contract scope under review

If the services/deliverables are likely to change over time there could be value in including a mechanism for an annual (or more frequent) review of them. Where the services and the deliverables evolve over time, the changes to the scope should be recorded in a contract variation or change control notice.

5. Be careful of informal contracting

Contracts do not need to be in writing to be legally binding. They can be formed by telephone calls, exchanges of emails and even by WhatsApp exchanges. A formal written contract is recommended for businesses since it creates a record of what has been agreed, it confirms the parties' rights and obligations, and the parties can include provisions which protect their position. Individuals dealing with contracts on a day in day out basis, need to be aware that it is best to avoid ‘informal’ communications, such as emojis and other text abbreviations, when discussing contract terms. There is a risk that the courts look at the course of dealings and use it to say that a contract has been formed. This is unsatisfactory for businesses since they have missed the opportunity to include robust terms and conditions. It may mean that the business is bound to a contract it did not intend to sign up to.

6. Be mindful what you write in an email

We know from Tip 5 that emails can be legally binding. To try and show that your email discussions are only discussions and not a contract, you can use the phrase "subject to contract" as the header of your email or include it in the email itself. This can help you demonstrate that you do not intend to be bound by the discussions in the email. You need to be aware though that this is not fool-proof. If you start to perform the actions and activities described in the emails then you may lose the "subject to contract" protection. Your sales teams and account managers also need to make sure they don't make promises and claims about your products and services in an email, which are not backed up by the product specification and warranties.

7. Make sure the contract is in final form ready for signing by the parties 

Before the contract is signed, you need to check that all of the content is completed, this includes the content of the schedules and any appendices. You need to remove all square brackets, tracking, highlighting, comments and drafting notes from the execution version and remove any draft watermarks. You also need to check all the clause numbering and cross-references. It is always a good idea to do a final, careful, read through of the contract before proceeding to the signing stage.

8. Make sure you sign and date the contract

Once you have agreed the terms of the contract with your counterparty you need to make sure it is fully signed and dated. A signed contract usually shows that the parties intended to be bound by the terms of the document in question. Where the parties have not fully signed a contract, there will be doubt over whether the terms of the contract had truly been agreed. This could give one of the parties an argument that the contract is not binding and could end up in a costly argument. You also need to check that the contract makes it clear when it comes into force. Many contracts become effective on the date on which they are signed by all of the parties. It is therefore really important that the parties signing date their signature.

9. Don't start performing the contract until signed

It can be very tempting to start the supply of goods and services before the contract has been fully agreed and signed. It may be that you know there are tough deadlines to meet, it may be that you have sales targets you need to hit, or you may just want to start the collaboration with a new supplier or customer as quickly as possible. It is highly risky to do this. If the contract has not been signed then it may not be legally binding and you will not benefit from the terms you need to protect your business. For example, without a contract a supplier may not get paid for the work it has performed. You will also lose your bargaining power – it will be much harder to agree on favourable terms once the supply has begun.

10. Be aware of termination rights in the contract

Parties sign up to a contract with expectations that the collaboration will proceed smoothly. Sometimes though, things won't go as planned or circumstances may change. Customers will ideally seek a break clause for convenience enabling them to exit the contract with no liability to the supplier. Suppliers may also want a break clause to enable them to exit an unprofitable contract, but will want to make sure that any termination rights ensure they recover their investment costs. If you do want to exit a contract, you need to make sure you follow the requirements of the contract when giving that notice. Some rolling contracts say that the parties need to give a fixed amount of notice by a certain date. Be aware that if you miss that date, you may be stuck with the contract for another year.

11. Comply with the contract's formality requirements

If you need to send a notice under the contract, exercise a right under the contract, or make a variation to the contract, you must make sure you strictly follow any requirements for that which are set out in the contract. For example, a notice to terminate the contract may need to be issued in writing and signed by an authorised representative.

12. Use your business' standard forms

Businesses often have their own standard contracts for the supply or purchase of goods and services. Your business may also have standard form confidentiality agreements and other collaboration frameworks. Where possible, you should use those standards. They will typically be tailored to how your business trades and will offer the best protection for your business. They will help you to ensure your contracts have consistent terms. If the project is unusual or complex then standard forms may not be appropriate and you may need a more bespoke contract.

As always, know when to reach out to your legal team. You should be clear about the scope of your contracting authority and the legal terms which are acceptable to your business. If you're ever unsure about the appropriate legal structure for a project, faced with a request to deviate from standard contract terms, or dealing with a contract provided by a counterparty, then it is time to contact your legal team.

Do you want to talk to us about these practical tips or find out more about training we can offer your business on this topic?

Simply reach out to Victoria Ferguson, Stephen Anderson or Peter Snaith.