Contracts Checklist

Here are some of the problems you may encounter:

Price & Cost

• Not making money expected

• Need to improve profits

• Competition drive down price

• Customers pay late

Programme & Scope

• We end up doing more than intended

• Customers don’t want to pay for extras

• Customers don’t do what they say

• Other people delay us

Terms & Conditions

• We worry about our contract liabilities

• We find T&Cs are full of legal jargon

• We only look at the contract when there’s a problem

• Terms always seem to be in the other party’s favour

That's why it's vital to review the proposed contract before tendering, again before accepting an order and before starting work. Plan to make your contract a success.

Can you do what is being asked?

A well-written contract will explain who must do / provide what, when.

Specification

• What are you asked to do?

• Look at what the contract says, not just what you've been told

Client-provided items

• Will they provide what you need / expect?

• Will you be charged?

Responsibilities

• What are you responsible for?

• Can you control / manage these responsibilities?

Also, think about what's missing?!

What are you expected to do, when? Check:

• When will you be working?

• How much notice you'll receive.

• How will the programme be managed?

• Who will you be working alongside?

• Can you meet the deadlines, and how will they change?

How much will you be paid? How do you get paid? A systematic review will uncover:

Delaying tactics

• Pay when paid*

• Pay when certified*

• Long payment terms

• Payment practices

(* Both illegal under the Construction Act).

Discounts and retention

• Are they a valid request? (Is it genuinely linked to your performance?)

• Is there a better alternative?

• Consider likelihood, timing and process for repayment

Bonds & Guarantees

• Easy route for clients to make claims.

• ‘On demand’ = don’t need to prove the claim – just ask for money!

• Consider if there is a better alternative

• Shorten the payment cycle

Terms which limit liability:

Delay:

• Delay or ‘force majeure’ clauses prevent the parties being held responsible for either:

• events beyond their reasonable control (wide)

• specified types of events, such as riots, war, natural disaster (narrow).

Indirect or consequential losses:

• In the event of a problem, claimants are generally entitled to be put in the position they would have been had the contract been performed properly. This means that if they lost profits or production, they would be entitled to claim for those costs. In order to minimise risk of exposure to such claims, parties often agree to not to claim indirect or consequential losses.

Misstatement / misrepresentation:

• Contract managers should take care to ensure that information and representations about their products and services are accurate, in order to avoid claims for misstatement or misrepresentation.

Terms which shift liability:

Damage / injury

• Contracts managers often look for ways to limit their exposure to claims for damage or injury as a result of problems on a contract. These can include excluding liability, capping liability and quantifying liability in advance by using liquidated damages. Liquidated damages should be a genuine pre-estimate of the damages likely to be experienced if the other party defaults. (They must not be a penalty).

• It is generally not possible to exclude liability for death or personal injury, however indemnities are used in some circumstances to shift responsibility from one party to another.

Mutual indemnities

• Indemnities shift responsibility for events (such as death, personal injury or property damage) away from the party who has been negligent or in breach of contract.

• Mutual indemnities (where each party agrees to take responsibility for claims relating to their own people and property) have the advantage of allowing each party to quantify their own risk, and ensure it is set at insurable levels.

Implied terms

If not specified, the following will be implied:

• Goods / services will be 'as described'

• Satisfactory quality

• Fit for purpose

• Reasonable time (includes reasonable notice to start, and requires you to work regularly and diligently)

• Reasonable price

• Reasonable care / skill

Other Terms

Deeds:

• A contract is also a ‘Deed’ if you see this word anywhere on the front or signing page. Avoid signing deeds, as they increase the time in which claims can be made against you from 6 to 12 years.

Fairness:

• Commercial contracts don’t generally have to be fair, although there are some legal restrictions on unfair contract terms. These take account of the nature and purpose of the transactions, and the commercial strength of the parties. If there is ambiguity in a contract document, the term will usually be construed in favour of the other party (against the party who put the term forward). Consumer contracts generally have to meet higher standards of fairness.

Separate terms:

• Commercial contracts often include a provision which means that if any term of the contract is not, or cannot be enforced, the remaining contract is unaffected, and cannot readily be set aside.

Suspension / termination:

• Commercial contracts often allow the client to suspend or terminate the contract for their convenience at any time during the contact. In these cases, the contractor is typically paid for work carried out or services engaged to date.

Resolving Problems

Think about how you will resolve any problems in advance!

Contractual Damages

• Damages paid for breach of contract are designed to put the claimant in the position they should have been if the contract had been performed properly. In order to make a successful claim, the damage should be:

  • caused by the breach

  • not be too remote

  • be of a claimable type (includes loss of profit / consequential loss)

• However claimants have a duty to mitigate loss as far as reasonable.

Damages for negligence

• It may be possible to claim damages for negligence against another party, even when there is no contractual relationship. Insurance will typically provide a certain level of cover for claims of negligence. Claimants can claim damages which were reasonably foreseeable.

Discretionary remedies

• Discretionary (equitable) remedies may be available through the courts. These include:

  • restitution (money back)

  • specific performance (being required to do something, such as finish the job)

  • injunction (being required to stop doing something).