In the current economic climate, most organisations across the automotive sector are looking to cut costs and drive efficiencies, all while building great working relationships with suppliers and clients.
However, in the pursuit of new business it is important not to lose sight of the need to put in place agreements that protect your company and set out the terms of the work you’ll do with a new business partner.
So, what are the ingredients of an effective contract? In this article Robin Adams, partner in Muckle’s commercial team, sets out 5 top tips in the form of 5 ‘Ps’ to keep in mind for successful contract writing.
Make sure you have named the correct organisation in the contract by checking the company/LLP number at Companies House and using the full corporate name. Company numbers don’t change but company names can. Then carry out your financial due diligence and consider what, if any, security is required, such as a parent company guarantee or bond.
What is the contractor required to do? What is your business required to do?
Include a clear scope of works/services and specification. The devil is in the detail, such as, for example, testing capabilities and procedures.
Price and payment
What’s the price to be paid, and when will payment be made? Can the price be adjusted and if so, how? The contract should set all of this out very clearly.
If there is a particularly complicated payment mechanism, consider setting that out in a table (or other accessible format) within the contract or include some worked examples, to prevent any ambiguity.
When should the works and services commence and be completed by?
If one party is late in delivering goods or services, will liquidated damages be payable or will the parties leave the courts to assess what damages apply?
Always think about what other terms and conditions should apply. Will you incorporate your own standard terms or use standard industry terms and in either case will those standard terms need to be varied the terms be bespoke? Look out for the customer’s own standard terms: they can apply depending on how the contract is formed.
- the required level of standard of care/materials
- rights to assign/novate, obtain collateral warranties, use intellectual property rights, request variations and to terminate
- change in law risk
- insurance requirements
- limitations and exclusions of liability
What boilerplate clauses should be included, in relation to, for example, confidentiality, service of notices, dispute resolution, governing law, waiver and set off?
Some provisions in a business-to-business contract will not work in a consumer contract and more generally the language will need to be more user friendly.
With the 5 Ps in mind, we always recommend seeking professional advice when it comes to drafting or negotiating contracts.
Muckle is a leading law firm for business and we can help you get your contracts right.