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As an SME you might be questioning do I need to review a contract? What do I need to consider when reviewing it? In this economic climate, it is increasingly important to understand and try to negotiate your supplier contracts before agreeing to them. These contracts are the lifeblood of your business, ensuring that you are provided the support you need. Unless your suppliers are meeting your needs, you cannot operate properly. This article explains why it is important to review your supplier contracts and how to review and negotiate them.

You may think that there is little value in reading through the contracts you are asked to sign, especially if you are dealing with a much larger organisation or are told that you are not able to amend the terms of the contract. At the very least however, you should be looking to understand what your rights and obligations are.

Are you able to comply with these terms?

Do you want to?

Do they reflect what you have been promised when speaking to this supplier?

If not, you need to consider whether you wish to sign the contract as it is written.

Businesses often assume that there is no scope for negotiation with another party when there actually is, and overlook the fact that negotiating a contract, if done well, can improve the relationship between the parties rather than harm it. Even small amendments to a contract (such as achieving marginal cost savings or removing an indemnity that you are asked to give) can have a huge impact in the long term.

The first step is to understand exactly what the supplier’s contract entitles you to. Does it set out exactly what they are to provide, and a clear timescale for doing so? What rights do you have if they fail to deliver what is promised? Are their fees clear and when are they payable? What can you do if you dispute an invoice? How easily can you get out of the contract if you no longer want to use the supplier, and at what cost? Supplier’s terms may often be missing important details that you will want to add in, especially if it has an ‘entire agreement’ clause which states that any promises or assurances that you have been given will not be binding unless they are set out within the contract. They may also seek to tie you in with long fixed terms.

Next you will need to understand your obligations and ensure that you are able to comply with them. Does the contract require you to have certain types and levels of insurance in place, and do you have that? Are you able to pay the supplier within the timeframe requested?

Finally you will need to consider if any term does not work in practice (this may for example be where a generic contract has not been tailored for your particular position meaning that you are being asked to comply with an obligation that does not apply to your particular situation), does not reflect what you have been promised or whether there is anything else missing from the contract that you want to rely on.

Once you have an understanding of the potential issues with the contract, you will then need to determine the best way of addressing these. It might be that the contract is generally fit for purpose subject to a few changes, or it may be that is better to start with one of your own standard terms of purchase, or to create a new bespoke contract. It may be that there really is no room for negotiation and you will need to take whatever commercial steps you can take to mitigate your risks, such as taking our additional insurance.

When discussing the issues you have come across, and any potential solution you may have for addressing them, with the other party and working through each of these you will need to listen to clearly express your concerns. It might be that some of your requests are accepted without question (especially where you have been promised something by the supplier but they have failed to tailor their terms to reflect that), or it might be that they try to offer alternative solutions to address your issue, or simply refuse to address them. Once you have negotiated the contract to the best of your ability you will need to determine whether you are happy to accept the risks posed by any issue that remains.

At Laceys, we are able to help with each stage of this process. We can help identify potential issues and explain the importance and potential risk of agreeing to the contract as drafted. We can help suggest changes to the contract that would offer you greater protection. We can then help negotiate the contract, having as much or as little involvement in the process as you would like. We can for example lead negotiation discussions or we can advise in the background without any contact with the other party, as you prefer.

For an informal conversation on any matter related to procurement, please contact one of our Commercial Contracts experts.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.