Why review contracts?
It is surprisingly easy to fall into the trap of preparing contracts once then assuming everything is okay. That would be a mistake. Just as commercial conditions never stop changing, neither does the law. Contracts need to constantly evolve and should be reviewed regularly to reflect the changing commercial and legal landscape. And to ensure you are adequately protected in the event that something goes wrong. For example, changes to the law may necessitate changes to your contracts. If you regularly enter into contracts using standard Terms & Conditions you need to make sure changes in the law are reflected in your terms.
Two examples – data protection and Brexit, both of which we cover in the checklist below, are key areas to look out for.
Contract review checklist
- The General Data Protection Regulations come into force in May 2018. These regulations will impact how you retain and use personal data. Have you considered how this will impact your contractual arrangements? The fines for breach of the GDPR can be large. Now, not May 2018, is the time to thinking about how you can adapt to meet these new requirements.
- Brexit is going to impact everyone. If you contract with businesses in the EU, rely on EU laws and regulations or are subject to an EU regulatory regime then Brexit will be of particular significance. Whilst the government intends to transpose existing EU law into domestic law at the time of Brexit, the enforcement and regulatory regimes will change from EU to domestic regimes. Are your contracts capable of adapting to Brexit? Do they need amendments? Again the time to consider these issues is before, not after.
- Commercial transactions carry risk. How confident are you that your contracts minimise your risk? Properly drafted contracts help reduce the risks your business face. For example, appropriate exclusion clauses can exclude your risk entirely, limitation of liability clauses can reduce your potential liability to manageable limits, entire agreement clauses help ensure certainty and effective payment terms will ensure payment is made on time (and if not that interest can be payable by late payers). How are your contracts mitigating risk to your business and do you need to review what’s included to increase protection?
- In the event something does go wrong, how does your contract help you deal with any disputes effectively? Contracts can require that parties follow agreed dispute resolution procedure rather than running off to court. Negotiation, mediation, arbitration can all be incorporated into agreements. This can help reduce the costs of disputes (and keep them private if reputation is an issue). Disputes have a cost in time and expense, even if you win. Appropriate contractual provisions can help reduce these costs. How are your contracts helping you and what do you need to include here if this is not already covered?
Contract reviewing should be a regular practice and considered an investment to ensure your terms are up to date and work most effectively for your business. It’s also an investment in ensuring that, in the event of a dispute, your risks are minimised and the issue is dealt with in the most effective manner. Don’t neglect this key foundation of your business legalities.
Richard Beckwith, Corporate & Commercial Lawbrief Lawyer