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What Should You Do if a Contract is Not Fit for Purpose?

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Contracts are vital documents that safeguard a business from risk. As such, your company must not cut corners when drafting business contracts. Occasionally, a third party may present a contract that is not fit for purpose and comes with various risks. This article will explore what to do if a contract with a third party is unsuitable. 

Why is it Important for a Contract to Be Fit for Purpose?

Contracts must be correct and tailored to the specific business project, purposes, and services or products they intend to cover. Otherwise, they could miss critical protections to safeguard your business from risk. 

Some contracts, such as software development agreements, are particularly bespoke and require careful thought and niche drafting to ensure they are correct and reflect what commercial parties have agreed to. 

However, there may be instances where a third party provides you with a contract.

Here is a crucial example of where a contract is not fit for purpose:

  • you are a supplier of services with your standard terms and conditions. A customer demands and insists that you use their standard vendor’s terms and conditions instead, or they will refuse to do business with you. However, the customer’s terms are not at all suitable. For instance, they miss crucial niche clauses around your service delivery, intellectual property rights, and how you will process personal data during the contract. Using the customer’s terms will, therefore, put your business at risk. 

Using a contract that is unsuitable is risky in various ways. For example:

  • the contract may not correctly address each party’s obligations, meaning there is more scope for misunderstandings and disputes;
  • the contract can omit critical protections that protect your business from risk, such as bespoke limitation of liability provisions. This could expose your business to heavy financial liability; 
  • the contract could generally create confusion and result in your business breaching it, for instance, by including obligations irrelevant to your project; as a customer, entering a contract unfit for purpose could mean you are liable to pay the costs of products or services you have not requested; and
  • as a supplier, using unsuitable and problematic contracts can result in significant questions and negotiation time and negatively impact your reputation. 

As such, it is always important to properly assess the suitability of commercial contracts before entering into them, both as a supplier and a customer. 

What To Do If a Contract is Unsuitable?

If you believe a contract is not of satisfactory quality, you should understand it creates risk for your business. 

As such, there are some key steps you can take to address the problem:

Consider Which Changes Are Needed 

Initially, you will need to take reasonable care to review the terms of the relevant contract and identify necessary changes.

 For example:

  • Are there specific clauses which are not relevant that you should remove?
  • Do you need to add key terms to which the parties have agreed or change specific provisions so they are tailored to the project? For example, what if your standard payment terms are 30 days, but the contract says the customer will pay within 90 days?
  • Is there any unclear language which could create confusion and risk?

Do you need to incorporate certain legal rights to protect your business from risk, such as limitation of liability clauses? 

Once you have identified the key issues and changes, you will be in a better position to rectify the problem.

Communicate and Manage Expectations 

When dealing with a third party, managing their expectations is vital. Both parties must communicate openly to discuss contractual concerns and reach a happy resolution. 

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For instance, if a customer presents you with an unsuitable contract, you could:

  • politely explain to the customer that the contract, in its current form, is not fit for purpose;
  • explain the issues and problems with the contract honestly and be constructive, focusing on a mutually agreeable solution; work with the customer to negotiate the terms fairly and reasonably. For instance, you may offer to amend specific contract terms to add missing details or remove provisions that will not apply to your project; and
  • openly explain the risks to the customer. For instance, an unsuitable contract that fails to comply with data protection laws or does not correctly address project deadlines could put both parties at risk. 

A flexible and reasonable approach will help your business resolve the problem more effectively.  

Seek Legal Advice 

It is a good idea to seek legal advice if you are struggling with an unsuitable contract. Professional legal advice can be invaluable when a contract is unfit for purpose. As such, it is sensible to involve a lawyer qualified in contract law to help address the issue.

A lawyer can help in many ways, including:

  • advising you on the risks of signing a contract unfit for purpose so that you can make an informed decision on how to proceed. A lawyer may spot additional problems with the contract you were unaware of. For example, unfair terms or terms that will cause you significant inconvenience or risk; 
  • reviewing the contract and advising you on the best way to address the problem. If a contract is unsuitable and needs to be corrected, the lawyer may recommend starting from scratch with a bespoke contract, which could be the quickest and cheapest approach. Or, they may suggest updating the contract with necessary updates to ensure it is fit for purpose; or
  • negotiating a contract on your behalf. A lawyer can lead negotiations with the other party, explaining why, in their professional opinion, the contract is unsuitable and helping you reach an agreement on the best way to proceed.

Lawyers are skilled at contract drafting and negotiation on behalf of clients. As such, working with an experienced lawyer can help you address these problems more quickly and confidently. 

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Key Takeaways

An unsuitable contract presents various risks. Therefore, you should act cautiously and work to rectify its problems. By taking proactive steps to carefully review the risks, address them, and seek legal support where necessary, you can ensure that your contract is correct and workable for both parties and have comfort that it safeguards your business from risk. 

If your business needs help with a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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Sej Lamba

Sej Lamba

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