Know your T&Cs! The benefits of contract management

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Usually issues or deficiencies in contractual documents, in particular standard T&Cs of trade, are not identified until it’s too late – a dispute is emerging between the contracting parties and your business is now reacting by considering what express rights and obligations it has under the contract (as well as other potential legal rights) to determine how to best limit risk exposure.

Businesses that take steps to pro-actively manage contracts from inception, and monitor throughout, are usually in a much better position (financially and commercially) to protect the business and minimise risk when a potential dispute does emerge.

Some key matters to consider for effective contract management include:

  •     Right Contract/T&Cs – do you have the right contract to govern the arrangement? This is a “common sense” point but one that really needs to have someone in the business turn their mind to and consider before reaching for the “standard contract” your business commonly uses.  Is it the best contract for that particular arrangement?  Does it need to (or can it) be amended or tailored to suit the particular arrangement? 
  •       Appointing a contract manager – who is in charge of the contract?  This should be someone within your business (or acting on your business behalf) who is regularly checking in on the particular contract to ensure that all parties are performing in accordance with their requirements and that critical dates are not missed. A person who can identify a potential matter which may become an issue and communicate that with management in a timely manner. 
  •   Monitoring legal changes – laws which may impact your contracts can be introduced or change.  An example of this is the unfair terms regime under the Australian Consumer Law which was extended to cover standard form small business contracts in November 2016 and, more recently, the new ipso facto regime which applies to certain contracts entered into from 1 July 2018.  This new regime may mean that certain express rights you have in your contract to protect the business (such as a right to suspend, terminate, call on security or step in) where the other contracting party experiences an insolvency event may not be enforceable for a certain period of time.  Many businesses will have ipso facto rights included in their standard contracts.  The commercial implications of this also need be considered (e.g. if not enforceable, what other steps can, or will your business take to start protecting itself from the contracting party’s insolvency event?
  •   Consideration of commercial changes – your business may go through a structural or operational change.  Are changes in your business processes reflected accurately in the contract (e.g. payment terms, insurance requirements, actual contracting party).  Can the contracts be varied to take into consideration this change?  How does this occur?
  •    Consideration of the client/contracting party – is the contracting party a new client or one that you have a history with? Do you know when the other contracting party has a change of ownership?  Do you have adequate protection to choose who you contract with or for payment default such as a right to charge interest or suspend services should you end up with a client who doesn’t pay?
  •   Regular review and update of precedent standard contracts – a good starting point in contract management is to regularly review and update the standard contracts/T&Cs of trade for your business to take into consideration such matters as are set out above. 

These are just examples.  There are many different processes and procedures that you can put into place to help protect your business.  You should ensure that what you do put in place is tailored to your specific business needs.  The above information is of a general nature only and should not be used as the basis for making any decision, without obtaining your own independent professional or legal advice.

 

Suzie Carroll