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Contracts are vital tools to protect suppliers from risk. However, each contact will differ depending on the circumstances and the relevant project. When drafting a contract, it is important to consider practical aspects such as time, costs, and the timeframe for contract completion. This article will explore some of the key practical considerations for suppliers to consider during the contract drafting process.
Why Are Contracts Vital Legal Documents?
A contract is the foundation of commercial agreements between parties, defining important agreed legal terms. Creating a robust contract governing the sale of products or services is crucial for your organisation. A contract acts as a legal safety net that can help defend your business from unforeseen problems and uncertainties.
The absence of a contract exposes your business to numerous potential risks and challenges. For instance, dissatisfied customers may complain if their expectations are not met and your contractual terms are unclear.
A well-defined, written contract prevents such complications by offering contractual parties clarity and legal assurance. In essence, a business contract formalises your commercial agreements and mitigates risks for all contractual stakeholders.
How Can a Contract Protect My Business?
A contract will protect your business in several ways.
For example by:
- Outlining responsibilities: A contract helps define each party’s roles and responsibilities. Your contract should specify obligations regarding project scope, timelines, and deliverables. This is crucial to avoid potential conflicts between you and the other contracting party.
- Managing Risk: Contracts enable you to identify and diminish potential risks that may arise during a project.
- Limiting liability: Including terms that limit liability within your contract is essential. This precautionary step may also help avoid excessive breach of contract claims, for instance, if customers know your liability to them is heavily limited.
- Helping resolve disputes: Integrating a dispute resolution mechanism into your contract can help resolve conflicts efficiently. This proactive approach may save you both time and costs.
- Encouraging prompt payment: Timely payment is critical for every supplier. Contracts are pivotal in ensuring prompt payment. Your contract should establish clear payment terms and define remedies for non-payment by your customer. These remedies may include interest accruing. Equally, you should be armed with termination rights, so you can terminate the contract if your customer does not pay you.
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What Are the Practical Considerations When Drafting a Contract?
When drafting a contract, navigating practical considerations is crucial.
Here are some key factors to consider:
1. How Long and How Many Resources Can You Commit?
One of the key practical considerations in contract drafting is balancing resources with costs. You must assess how much time and money you will invest in drafting a contract relative to the project’s value.
Another practical aspect to consider is the allocation of internal resources. You need to determine whether involving fewer internal team members in contract drafting could simplify the process and save time. Clear communication and defined roles within your team can help improve resource allocation during contract drafting.
2. What Are Your Timeframes?
Setting clear timeframes for drafting, negotiation, and execution is essential to prevent delays and minimise additional costs. Suppliers can ensure that contract negotiations progress efficiently without avoidable delays by creating realistic deadlines. If you have a tight contract completion deadline, you may opt for drafting a shorter-form contract. This will save you time and speed up contract closure.
3. What Is Your Negotiation Strategy?
Often, drafting a contract will naturally result in some back-and-forth negotiations.
It is also crucial to consider your tactics for contract negotiations during the process. Considering your strategy from the outset, including your bargaining power and critical points you can negotiate, is helpful. For instance, you should consider what are your ‘deal breakers’ and what compromises you can live with. It often works to adopt a flexible approach in negotiations where possible, as a hard-line approach could cost you business as a supplier.
4. Do You Need Legal Advice?
Navigating the difficulties of contract drafting can be challenging, and seeking legal guidance is often sensible. Commercial lawyers can provide you with valuable insights into critical legal risks and help you select the most appropriate contract type. Their expertise can ensure that your contracts strike the right balance between legal protection and practicality. As such, it is essential to consider the need for legal advice from the outset. Handing contract drafting over to a qualified and professional solicitor can save you time. Also, you are guaranteed to have a more robust agreement drafted. It is also likely the contract closure process will be streamlined.
A lawyer can help you with various matters, including:
- creating legally binding agreements;
- enabling smooth business transactions that can foster strong working relationships;
- advising you on high-risk contractual issues that require careful consideration; and
- offering practical tips for contract negotiations.
5. Should You Adopt a Consistent Approach?
Planning and strategy can assist when entering into contracts.
For instance, you should consider practical considerations for drafting such as:
- whether you should work with standard contract templates, which you could adapt for different business transactions; and
- how to handle contracts proposed by third parties – for instance, whether you should push back and insist on using your own contractual documents.
Adopting a consistent approach may help you streamline processes and conclude contracts quicker.
Other practical considerations could include whether you should use tools such as software to track your contract drafting and negotiation process. This will be particularly useful if you work with a large number of customers.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
Key Takeaways
Prioritising contract drafting is essential for every supplier business to mitigate risks effectively. When drafting a contract, there are various practical issues to consider. For instance, how much time and resources are you willing to invest, your negotiation strategy, and whether or not you need legal support for drafting. Considering these factors from the outset can help your business plan forward, approach contract drafting confidently, reduce time and costs, and conclude contracts more smoothly and successfully.
If you need help with drafting or evaluating a contract, contact our experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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