The links in the supply chain are those contractual
relationships that can either turn a profit or cost you a fortune.
It can be tempting to dismiss contracts as small print that nobody
reads – after all, you know how your business works.
Consider the following common points of view.
"I can draft a contract; there's no magic in it"
It's true that there is no magic; but there is some law.
Contract law is based on various statutes and also
previously-decided court cases that rarely made front-page news.
It's not always what is written in a contract that makes the
difference; it can be what has been left out.
Contract drafting skills are honed with training and experience.
Commercial solicitors draft contracts for a living and
unsurprisingly become good at it. There is no scope for "I
thought that meant…" or "I meant it to say…" when the
provisions of a contract are judged at some future point.
Litigation lawyers lick their lips when they hear these words.
"We avoid court, so we don't need a lawyer writing our
contract"
If your policy is to concede every dispute you get into, you are
unlikely to end up in court. But if you answer claims made against
you or seek to enforce your contractual rights, the lack of a good
contract can thwart your best endeavours to win justice. Keeping
contractual disputes away from the courts relies on well-crafted
contract documents.
Contracts should provide certainty. There is an obvious tension
between certitude and flexibility, but properly-structured
contracts can accommodate the parties' need for the contract to
live and breathe without compromising certainty.
There is a view that whatever the contract says, businesses will
work something out if a problem arises. Contracts do not prevent
compromises being reached which accommodate prevailing commercial
realities, but the goodwill to resolve issues amicably can be a
light which fades with the passage of time. A good contract
provides a baseline for negotiated solutions and the party with the
better contractual position stands more chance of achieving the
outcome it seeks.
"We cannot afford to upset the other side by challenging them
on their contract terms"
Contracts are never negotiated in a vacuum. The commercial
strengths and vulnerabilities of the parties will impact upon their
ability to negotiate the terms they want. It can be difficult for a
company that needs to win a contract to stand up for itself without
incurring the displeasure of the other side, but the other side
will be more willing to accept that a prudent company, advised by
lawyers, cannot ignore the professional advice it has received. A
lawyer on the negotiating team can enable you to punch above your
weight.
"Our supplier's form of contract is pretty fair – they know
what the contract needs to say"
Contracts record a deal. There is a common interest in many of
the contractual provisions in a typical agreement. However,
contracts also apportion risk and determine reward. One party to a
contract will hold differing views to another. The balance of a
contract can be skewed if one party relies on the other to be
even-handed. Fairness is a subjective concept.
"People do deals – our contract just explains the deal"
This is how it should be and what most businesses think; but the
courts deal with contractual disputes on a daily basis. Many such
disputes turn on the interpretation of clauses that were poorly
drafted, but most contractual disputes never come before the
courts. The cost of litigation operates as a strong deterrent to
legal proceedings and disputes are resolved informally. Relying on
a badly worded contract is unlikely to produce the desired result
in a negotiated settlement.
Contracts forge the links in modern supply chains. Contracts,
like chains, can restrain freedom, or they can take enormous
strain. Chains are only ever as strong as their weakest link. In
your supply chain, are your contracts as strong as they should be?
The investment in a properly-drafted contract is one which you will
only appreciate if you have to rely on contractual terms to get
paid or to seek other remedies. Hopefully, such occasions are few
and far between, but when they do occur, the return on your initial
investment in a robust contract will pay handsome dividends.
This article was written by Simon Pigden, a partner in
Pinsent Masons' Birmingham office. Simon leads the firm's national
commercial contracts practice.
simon.pigden@pinsentmasons.com
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