Contract Variations: Legal Guidelines for Small Businesses

In business, circumstances and deals can quickly change, meaning contractual terms needs to change. Changing a contract can help your small business stay agile and adapt its agreements to the evolving circumstances. Poorly managing contract variations can lead to problems, from disputes to unenforceable changes and financial risks. As such, your small business must take the time to understand what a contract variation is and how to vary a contract correctly. This article explores how to effectively manage written business-to-business contract variations and avoid risk as a small business. 

What is a Contract Variation? 

Your small business can vary a contract by changing specific terms without completely replacing the original agreement. This can help save time and costs. 

Variations in a contract provide flexibility but do come with risks. Mishandling changes to a contract can increase the risk of disputes, especially if one party later denies agreeing to the variation. Managing variations correctly is, therefore, vital for your small business. Your small business can vary a contract in multiple ways, depending on the terms of the original agreement. 

Written variations work best because they clearly document the agreed changes. You can do this in different ways. For example, drafting a formal contract variation amendment or entering into a deed of variation. In some contracts, one party can update terms unilaterally. 

Can Varying a Contract Help a Small Business?

Varying a contract may benefit your business relationships in certain circumstances. For example, when a client asks for a service extension, you can use the opportunity to negotiate better payment terms or secure additional work. Agreeing to reasonable changes with suppliers or partners also shows flexibility and can help foster goodwill. As such, it is essential to understand how to handle variations correctly. Circumstances may also require you to vary your contracts, such as a change in legal rules that affects them. 

What Risks Do Contract Variations Pose to Your Small Business?

Variation disputes can be challenging and disrupt your small business significantly. In such cases, the courts will typically examine whether both parties agreed to the variation or whether one party had the right to make the change alone.

Consideration can take many forms, including the assumption of additional obligations. For example, agreeing to quicker delivery in return for a higher cost could provide sufficient consideration. To minimise disputes and arguments around valid consideration, you can formalise your contract variations as deeds or include nominal consideration amounts, such as a payment of £1.

What Key Steps Should Your Small Business Take to Prevent Risk When Varying Contracts?

Here are some key steps your business can take to prevent risk when varying a contract:

• to reduce risks, you should always check your original contract to see what it says about variation and any formalities you need to follow. Many agreements include specific procedures for making variations, such as terms requiring the parties to agree to a variation in writing;
• a variation must comply with any formalities set out in the original contract or required by law for a variation to be valid. If the contract includes a clause requiring variations to be in writing, for instance, verbal or informal changes will not be enforceable;
• you should make sure all parties to the original contract are a party to the variation where required; and
• you should also make sure that changes are clearly documented and mutually agreed upon by all parties. You should carefully review potential ‘consequential amendments’. For example, how a variation might affect other parts of the contract or related agreements. Working with a commercial contracts solicitor can help you with this and ensure you avoid pitfalls such as conflicts and other unintended consequences arising from the variation agreement. 

It is essential to take your time to address contract variations correctly and thoroughly. Even if you are in a rush to change a project’s terms (for instance, at a client’s urgent request), you should carefully consider the necessary steps to vary your contract correctly to ensure the variations are legally sound and enforceable. 

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Key Takeaways 

Contract variations can allow your small business to adapt agreements to changing circumstances, but such changes need to be approached with care and focus. Your small business should carefully check to ensure your contract variations meet legal requirements and comply with any necessary formalities to ensure they are legally sound. Managing your variations carefully and working with commercial contract lawyers where necessary can help ensure your small business avoids disputes and maintains strong business relationships.

If you need help with a contract variation for your small business, our experienced contract lawyers are here to help. Through our LegalVision membership, your small business can access unlimited legal support to ensure your contracts remain enforced and aligned with your goals. Call us today at 0808 196 8584 or visit our membership page for more information.

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