Table of Contents
In Short
- An assignment clause in a supplier contract controls the transfer of contract rights and subcontracting, helping businesses manage who performs the contract and benefits from it.
- It prevents unwanted third-party involvement and ensures transparency in any changes.
- Including this clause protects your business and supply chain integrity.
Tips for Businesses
Include a well-drafted assignment clause in supplier contracts to maintain control over subcontracting and assignment. Ensure the clause requires your approval for any third-party involvement to safeguard service quality and business relationships.
Commercial contracts are vital tools to protect a business customer from risk. As a business owner working with suppliers, you should structure your contracts carefully to protect your interests and ensure smooth business operations. A key provision in any supplier contract is a combined assignment and subcontracting (also known as ‘other dealings’) clause. This clause helps control who performs the contract and who benefits from it, which is crucial in managing who is a contracting party and maintaining business relationships. This article explains an assignment clause, how it can benefit your business, and why including one in your supplier business contracts can help protect your business from risk.
What is an Assignment Clause?
An assignment clause governs the transfer of rights under a contract. This can be combined with a separate subcontracting clause that can be used to manage who performs the contract.
Under English law, the benefit of a contract (such as the right to receive payment) can generally be assigned to another party unless the contract expressly prohibits it or the contract is personal (such as those for personal services, where the identity of the parties is key).
If the contract does not explicitly address assignment, the default legal position allows a party to assign their rights without needing the other party’s consent. Implied restrictions on assignment are uncommon unless the contract is personal. Similarly, a party can also subcontract their obligations (where the original party remains liable for performance) unless the contract prohibits it or if personal performance is required.
An assignment clause, however, allows you to restrict or control these transfers. For instance, your contract can include an express clause which requires the other party to obtain your consent before assigning rights or subcontracting duties. This ensures you have oversight and can prevent unwanted third parties from becoming involved.
How Can an Assignment Clause Benefit Your Business as a Customer?
An assignment and subcontracting clause provides several key advantages:
Control Over Who Benefits from the Contract
Good assignment clause drafting can help ensure that third parties do not share the benefits of the contract (e.g., payments or rights) without your consent. Without this clause, your supplier might transfer their rights to an undesirable party. An undesirable party may include a business with a poor reputation.
By including an assignment clause, you will be able to make sure that only approved third parties can benefit from the contract, maintaining control over your business relationships.
Control Over Who Performs the Contract
The clause gives you control over who performs the contract. If you want only your chosen supplier to handle the contract’s obligations, the subcontracting clause can prevent them from subcontracting the work to third parties without your approval. This can be particularly important for ensuring that the quality of goods or services meets your business needs and that the supply chain remains reliable.
Prevent Unwanted Subcontracting
If you are concerned about your supplier subcontracting to a party you disapprove of within your supply chain, a subcontracting clause can restrict this.
Ensure Transparency in Subcontracting
An assignment and subcontracting clause can also help ensure transparency. It can require your supplier to notify you of any planned assignment of rights. This allows you to review and approve the new parties involved.
Use this checklist to ensure your supplier contracts contain all necessary terms.
This level of control ensures that you are always aware of who is responsible for performing the contract. And, thus, you can assess their capability to meet your standards.
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How Can a Lawyer Help You Draft an Assignment Clause?
A well-drafted assignment and subcontracting clause is critical for protecting your business interests. However, these clauses do not take a one-size-fits-all approach and require tailoring to meet your specific preferences.
A commercial contracts lawyer can help you draft a suitable clause reflecting your business needs and mitigating potential risks. For example, a lawyer can help you draft wording to ensure that:
- your consent is required before any assignment or subcontracting takes place, giving you control over the process;
- conditions are attached to any assignments or subcontracting, such as requiring that the new party meets certain standards or qualifications; and
- you are notified of any changes, ensuring transparency and allowing you to review any new third parties before they become involved in your contract.
Key Takeaways
An assignment clause can be a crucial provision in supplier contracts. Good contract drafting can allow you to control who performs the contract and who benefits from it. This ensures the protection of your business interests and supply chain.
Without this clause, the default legal position under English law may allow your supplier to assign rights or subcontract duties without your consent. This can lead to unwanted changes or third-party involvement in your contract.
If you need help drafting or reviewing an assignment clause, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An assignment and subcontracting clause controls whether parties can transfer the rights under the contract, offering control over who performs the contract and who benefits from it.
An assignment and subcontracting clause helps you maintain control over your business relationships, ensuring that third parties cannot perform or benefit from the contract without your consent. A lawyer can help draft a clause that aligns with your business needs.
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