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What makes a strong business contract? Our advice

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What makes a strong business contract? Our advice

Today it is more important than ever for businesses to have in place clear and effective contract arrangements.  

Businesses which are aware of the implications of contract law can use it to enhance and also protect their own position. 

In this article, Paul Longland, who recently joined Frettens after 30 years as partner at another long-established local corporate law firm, outlines his tips for effective contracting.

When would you use a contract?

Contracts in business should be used to outline both parties’ obligations and protect your business and its legal position.

It is surprising though how many businesses are reliant on a key product, client, customer or supplier but have no written contractual arrangements in place with the person or company involved.

At least a contract with a notice period will give a grace period if the worst happens.

What are incorporated terms?

Incorporated terms are any terms which have been included in a contract. Terms only become legally binding once they have been incorporated into the contract.

How do you incorporate terms and conditions?

Terms become incorporated by including them within the contract or referring to them in the contract.

You must make the inclusion of such terms clear to the other party by taking ‘reasonable steps’.

  • It’s beneficial to have a clear statement in writing of what has been agreed
  • All parties agreeing and signing before work begins is preferable
  • Make sure terms and conditions are supplied to customers before any order is placed
  • On a website, make sure that any terms posted are clearly indicated and acknowledged when the order is placed

What should business contracts include?

Any contract should:

  • Record the commercial deal which has been reached
  • Include a clear and unambiguous description of who does what and when.
  • Include a clear statement of what:
    • the contract provides for,
    • timescales apply,
    • the guarantees and quality standards will be,
    • and how goods or services will be paid for.

How does a contract protect your business?

Next, consider what additional terms can be included in order to enhance the contractual and therefore legal position of the parties – and help to protect their businesses.

Appropriate inclusions depend on the importance and value of the contract from the point of view of both parties.

Here’s a checklist of terms that can help to protect your business’ legal position:

  • Clear payment terms with specify dates and times for payments and how payments should be made
  • Currencies used, which exchange rate will apply where (if necessary)
  • Advance payment/deposit where necessary
  • Interest provisions and provisions for action to be taken for overdue payments
  • Retention of title
  • Guarantees (such as personal guarantees)
  • Any performance bonds/third party security
  • Any supplier warranties and/or guarantees
  • Liquidated damages
  • Price adjustment clauses if necessary
  • Powers of termination
  • Controls may be needed regarding the supplier’s performance obligations
  • Performance review and ‘best value’ clauses may also be relevant
  • Limits of liability and force majeure provisions where needed
  • Non-competition clauses, if needed
  • Intellectual Property
  • Dispute resolution procedures may also be relevant

How to deal with contract variations

Finally, how are variations to the contract going to be dealt with? 

I recommend that:

  • Any agreed variations are clearly recorded
  • Variations are costed out and then incorporated into the price to be paid
  • Any further amendments and additions are incorporated into contract addendums so that the whole history is recorded and agreed.

Effective contracting: Our advice

Paul Longland, Company & Commercial Solicitor, says: “In my experience, those businesses which give priority to having in place effective and modern contract terms, which can protect the interests of the business itself, appear more professional and gain respect from the organisations they deal with.

When things go wrong or threaten to go wrong, the work carried out on contract arrangements can prove decisive.”

Special business contract solicitors in Dorset

If you have any questions following this article, or would like some tailored advice on your business’ contracts, please don’t hesitate to get in touch with our bright team.

Our team have experience in drafting effective and legally sound contracts, covering areas such as Ts and Cs, franchising, shareholder, partnership and LLP arrangements, personal guarantees and more.

You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial consultation.

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The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.