Just recently, Co‑operatives UK members have contacted Anthony Collins Solicitors for support about entering into contracts to buy and sell goods and services. Although contracts can be complex, there are some basic principles that all co-ops should consider when entering into a contract – so Anthony Collins have set out a handy checklist to help.
Who is the other party?
If the other party is a company, you can confirm its details online at www.companieshouse.gov.uk and access its most recent set of published accounts. If the supplier appears to be in financial difficulties, you may wish to re-consider the arrangement. If it’s a co‑operative or community benefit society, you can confirm its details online at mutuals.fca.org.uk and access its most recent annual return.
There may be other reasons for proceeding with caution. For example, does the supplier have reputational issues; are they a competitor or potential competitor; do they operate in a high-risk country or business area in relation to compliance and ethical issues (such as bribery and corruption or modern slavery)? Some of these risks can be addressed in the contract terms, but others may mean that it is not a good idea to proceed.
What is each contracting party agreeing to do?
Without clear terms about which party is doing what, the contract may be unenforceable, or it may be difficult to prove a breach of contract if the supplier fails to perform in line with expectations. Care should be taken in relation to setting out requirements for services, which are often trickier to define than goods or products. Ideally the contract should be specific about desired outcomes as well as the services or inputs required.
Does the contract need to be in writing?
Generally, contracts for services or supplies do not have to be in writing and can be verbally agreed. However, it is good practice for a contract to be written down as it minimises the risk of future disputes about whether a contract exists and what terms apply.
- “Entire agreement” clause: Most commercial contracts include a clause which states that all of the terms of the contract are set out in the written contract. This means that the parties cannot rely on any other terms, including those set out in correspondence or verbally agreed. It is therefore essential to write into the contract any terms that you want to be binding.
- Avoid starting work without a signed contract: It is not unusual for parties to a contract to start work without a signed contract in place due to urgency or, in another common scenario, where both parties have supplied their own set of standard terms without establishing which set applies. If a dispute arises, a court will apply legal principles relating to contract formation to establish the relevant terms, and the outcome of this is unpredictable.
Key terms in a written contract
- Obligations, scope and specifications: The contract should state clearly what the supplier is required to do and what obligations reside with you. It should include a detailed and clear specification and avoid relying simply on an appended tender submission or proposal.
- Duration of the contract and extension: How long do you want the contract to last? You may opt for an initial term with an option to extend for a further period.
- Price and payment: What price is payable and when, for example, at periodic intervals or on satisfactory completion of specific outputs? The supplier may seek to include a price review or index-linked price increases, particularly in longer term contracts.
- Intellectual property: If the goods or services include the use and/or development of intellectual property, how will this be dealt with?
- Data protection: Does the contract involved any processing or sharing of personal data?
- Confidentiality: If you are disclosing information to the supplier, the contract should include appropriate confidentiality undertakings. If disclosures will occur before the contract is signed, consider entering into a pre-contract non-disclosure agreement.
- Representations and warranties: The provider will seek to limit the scope of any warranties or representations about the quality or standard of goods or services, although certain warranties in relation to quality of goods and services and title to goods are implied under legislation and cannot be excluded.
- Limitation of liability and insurance: Any limit or liability cap must be commercially acceptable and reflect the risks involved, particularly the potential impact on your business of the supplier’s performance failure. There should be an explicit obligation on the supplier to hold insurance so that its liability is covered.
We have worked with our lawyers Anthony Collins Solicitors to produce this blog. This checklist is not exhaustive and if members have any questions, we can provide support. Contact Co‑operatives UK’s advice team by email at [email protected] or by phone on 0161 214 1772.