Commercial Contracts – now is the time for a review
The New Year is a great time for a fresh start and for new goals for most of us; so why shouldn’t this apply to your business too?
Getting your business into shape starts with getting your commercial contracts in order. Businesses sometimes source commercial contracts from templates available on the web or adapt existing agreements from customers, suppliers or even unrelated third parties. This may seem like a cost saving exercise, but it is not recommended. Get it wrong and disputes may arise. Litigation is expensive, it takes time away from being able to focus on the business and usually results in negative publicity.
Using bespoke commercial contracts reduces the risk of litigation and makes businesses stand out as being professional and accomplished in their industries.
Future proof your business
Where you have commercial contracts in place, it’s a good idea to review them now to consider:
re-negotiating important contractual terms like price, exclusivity, minimum purchase obligations, duration and notice periods
making savings through benchmarking or ‘most favoured customer’ clauses
negotiating an exit from the contract or terminating it
Even where there is no contractual period to re-negotiate or exit a contract, the commercial relationship, economic pressures or other incentives may present an opportunity to allow it to take place. What’s more, a review may reduce unnecessary costs to the business, redefine contractual relationships, merge compatible components of a business, realise the greatest value from the contracts or address commercial relationships which no longer reflect the direction or needs of the business.
What to review?
Overall your commercial contracts should protect the interests of your business, but it’s also very important to keep in mind that they should not be too one-sided or protracted. Customers or suppliers may not agree to sign contracts with unfavourable terms and, even where they do so, such provisions may not be legally compliant.
A review should include all standard terms and conditions with suppliers and customers and all general and bespoke business contracts relating to services, sales, marketing, IT, purchasing, logistics, maintenance, outsourcing, and everything else in between. Savings are possible in any level of contract but concentrating on your larger contracts in terms of volume or income/cost typically delivers the greatest rewards.
Stuart Sproule from MKB Law’s Corporate team comments: “Our focus is always to manage the potential risks for our clients by providing practical advice to get the balance right for them. In reviewing business contracts, we ensure our recommendations take on board the commercial relationship which may be affected by the review and any requirements which may be necessary for the contract to operate in afterwards.”