Entering into agreement and contracts is a crucial part of business. It is important to ensure that these transactions take place without hiccups, as disputes in contract can be costly, time consuming and damage relationships. In our line of work, we see similarities in the hurdles that trip people up when they are entering into contracts. To help with this we have created this list of 7 useful tips to assist and point out the hurdles to avoid when entering into contractual agreements.
Contract Formation
- The basics required for the formations of a contract are: Offer, Consideration (usually money) and Acceptance. If those exist a contract may be in place – even if it is not written down.
- Make sure you receive a signed copy of the final version of the contract. We often see issues arising where one party signs and send the contract to the other party, on the understanding that the contract is finalised, but the other party makes further changes before signing or doesn’t sign the contract at all.
- It is essential to ensure you receive a finalised contract which is signed by all parties/ which incorporates all agreed changes.
Record Keeping
- Save important emails, relevant folders, keeping written records of conversations (follow up email recording what was agreed; meeting minutes etc).
- Tailor a system that works for you personally, works for your team and your organisation. Be disciplined and stick to it, making sure the process is clear and being followed by all relevant people.
- Take time to review your process every now and again, to ensure they are still fit for purpose.
- There are some legislative and contractual requirements for documents and records that must be kept for a specified time. Know your obligations and abide by them.
Language
- If you have a few people in your business who enter into contracts for your business then when they are sending an email or making a phone call they have the potential to commit your business to something.
- If that’s you, ensure that you do not use language that can commit the business to transactions unless you are 100% sure that what you are doing is acceptable, and achievable. To avoid this use “less binding” phrases that do not commit the company, i.e.
- “I will seek instructions”
- “I will confirm in writing”
- “I will talk to the leadership team and confirm”
Good Faith Transactions
- While it is important to maintain good relationship it is hard, expensive and time consuming to get money back once it is paid, so if you are making a payment make sure there is an agreement in place.
- To ensure a smooth transaction it is good practice to keep a record of the circumstances of good faith payment with an emphasis on recording when it would be repaid if no agreement was reached.
Variations
- Changes to contracts are common practice in business. Variations offer much needed flexibility to agreements and allow contracts to be useful even in changing circumstances. However, poorly managed variations can present more bad than good. Poorly managed variation can be time consuming, expensive and strain the relationship between parties. They can result in misunderstanding or confusion between the parties or end up in lengthy and costly litigation.
Practical Tips:
- Ask whether a variation to the contract is necessary, or if it can be dealt with some other way.
- Check the processes for variation in agreements.
- Clearly specify the terms of the contract that are being varied.
- Consider the flow on effects on other clauses.
- Minimise as much as possible oral variations and if they occur, record them in writing.
Reviewing Documents
- If contract documents are not standard, are new/unfamiliar, have substantial variations to them, or carry the potential for increased liability, we recommend having the documents reviewed. Reviews might be internal, with a colleague or supervisor, or you could let a lawyer review documents.
- Make sure you give the person reviewing the documents all relevant paperwork (the full contract) etc; so they can ensure consistency and understand the context when they review.
Confidentiality
- Have a system in place to ensure confidentiality is kept and there is a process for dealing with breaches, as they may occur.
- Make sure documents are marked as confidential.
- When sending sensitive emails, double check who you are sending to and who is copied in to the email. Check long email chains for sensitive material.
- Check your legal and contractual requirements. Are their specific requirements in your contracts to keep material confidential, or are there individuals you have to notify if there is a breach?
We hope that these tips are helpful in your negotiation of contracts. If you’d like to discuss then our team of experts would be happy to do so.
This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact Steven Moe – stevenmoe@parryfield.com, Michael Belay – michaelbelay@parryfield.com or Diana Youssif – dianayoussif@parryfield.com at Parry Field Lawyers
