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Do you read the T’s and C’s in contracts? Here’s why you should

Too many small businesses won’t think about the terms and conditions in their contracts until something goes wrong. Manufacturing Advisor Martin Hyman explains why, if you’re not careful, you could be signing your life away – and provides some basic tips every business should follow to protect themselves.


How many people actually bother to read the terms and conditions of contracts they sign? The answer is, almost certainly, not enough!

Contract law might not be a particularly sexy subject, but making sure you have robust T’s and C’s in place and clearly understand those of your customers and suppliers is business critical. Things may go smoothly 99 times out of 100, but that one time something goes wrong could be at best costly, and at worst catastrophic, if you get caught out by something you signed without reading.

Remember: ignorance is no excuse when it comes to the law!

Below are some basic tips and scenarios that you should be aware of, but for expert advice always speak to a qualified commercial lawyer.

 

Make sure you understand where you stand

Standard terms and conditions should form the basis of any contract you sign with another company. Without robust written T’s and C’s of your own, you are beholden to theirs, which is not a situation in which you want to find yourself.

Where T’s and C’s do exist, have you considered what they mean and do they cover all eventualities? Take the following scenarios as examples:

  1. What happens if your supplier fails to deliver a product on time as agreed? And what happens if you can’t fulfil your customer orders as a result?
  2. What happens if you receive defective goods, or you inadvertently provide defective goods to your customer?
  3. What happens if the product is damaged in transit?
  4. What happens if it turns out your customer doesn’t hold the right to manufacture the product you make for them?
  5. What if the designs you receive from your customer are wrong, and as a result the product you deliver ends up failing when used by the end customer down the line? Are you liable for any contingent liabilities or consequential liabilities in any of these scenarios?

The bottom line is, if you don’t dot the I’s and cross the T’s, you might be getting yourself into something that you can’t easily get out of. Better to make sure you understand where you stand from the beginning and have a robust set of written rules to fall back on.

(It goes without saying that written T’s and C’s are also much easier to enforce if things end up going to court.)

 

Have a look online (but always speak to an expert)

If you don’t yet have T’s and C’s of your own, a good place to start is to look at your competitors’. You may find that they are made available on their website (something I also recommend you do yourself).

For example, the T’s and C’s on the website of this engineering firm contain clauses that protect them from each of the scenarios listed above:

  1. The ‘Time’ clause ensures the company cannot be held liable for delays in delivery and any consequential loss or damages arising from late delivery
  2. The ‘Guarantee’ clause sets out the terms under which the company accepts liability/does not accept liability for any part of the product that is found to be defective
  3. The ‘Delivery’ clause sets out the conditions under which the company accepts/does not accept liability for damage in transit
  4. The ‘Ownership and risk’ clause ensures all risk is passed to the customer once they take delivery of the goods or pay in full
  5. The ‘Designs and drawings’ clause eliminates any liability for the incorrect functioning of goods if they are manufactured to designs submitted or approved by the customer.

While you can use other company’s T’s and C’s as a useful reference point, do not blanket copy them for your own use. Always engage a commercial lawyer to produce comprehensive T’s and C’s that are designed specifically for your business and industry.

 

Watch out for superseding

If both you and your customer have your own T’s and C’s that conflict with one another, whose takes priority?

The answer is often the T’s and C’s last communicated and agreed to (whether directly or indirectly). You may have standard payment terms of 30 days in your T’s and C’s, but if your customer comes back to you with their own payment terms of 90 days in the contract you sign, it is their terms that take primacy.

I’ve seen a similar problem occur recently, where a manufacturer thought they had agreed an escalation clause with a customer which would allow them to increase their price if the cost of their primary raw material increases. However, the customer’s own terms locked in a fixed price for the duration of the contract. The manufacturer is now having to speak to their solicitor to make sure key elements of their terms are never superseded.

Here’s an example of another set of T’s and C’s from a manufacturer that attempts to ensure the company retains primacy in any sale. Clause 3.5 states that an order from a customer is deemed to be an offer to purchase products “subject to these conditions” (although I’d recommend running something like this by a solicitor before using a similar statement).

Always try to make sure your terms are the ones that have primacy, but if they don’t, make sure you understand your customer’s inside-out before proceeding.  

 

Keep everything up-to-date

When was the last time you read your own T’s and C’s? Are they still applicable in the current economic or geopolitical environment? You should review your terms at least annually to ensure they remain appropriate, or more regularly during times of major disturbance (your country leaving a major international trading bloc, a pandemic that cuts off your supply chain or a war that makes you think twice about who you want to trade with are all good examples!).

If you change your T’s and C’s you need to retain copies of all previous versions, as they will continue to apply to any contracts signed at the time. Make sure you don’t lose track by implementing version control and making sure everything is dated and stored properly.

 

If you trade overseas

Take particular care to read the small print and negotiate acceptable terms if you import or export goods, because things can get even more complex.

If you export, make sure you understand the INCOTERMS® rules – a set of universal terms for trade that will help you to negotiate a clearly defined contract. For more support in this area, I recommend you contact your local Chamber of Commerce or Department for International Trade (DIT). Also, it’s important to reference the specific version INCOTERMS® you are invoking in your contract (as for instance the definition of the terms were updated in the 2020 version of the rules).

It’s also worth taking note of what the terms are in the case of a dispute. You may find that your contract means that you would have to go to court in another country to fight your case, potentially in another language. You may want to put a similar condition in place in your own T’s and C’s if you have overseas customers, to ensure any dispute can be settled in a UK court.

 

Questions?

If you’re an SME based in Greater Manchester and find yourself in a muddle with contracts, our specialist Manufacturing Advisors may be able to help whilst also supporting you to become more productive and profitable.

Alternatively, if you need qualified legal advice and don’t know where to turn, GC Business Growth Hub works in partnership with several law firms listed here.

 

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