Supplier Contracts – you must still sweat the small stuff

As a nation do you think we are becoming immune to Terms & Conditions? Every day on your phone, tablet, laptop, or PC you are being asked to agree new Terms and Conditions. Who looks through the small print? Surely it is just standard “stuff” so let’s just agree to it and crack on.

I worry that this laissez-faire attitude is now finding its way in to how we view and easily accept the T&C’s of supplier contracts we sign for our business. Don’t get me wrong for years I have seen that very few people ever do read the T&C’s they sign up to! But maybe this new wave of blind acceptance is making us miss the real potential horrors within a contract and setting us up for a future financial fright.

With this in mind here are my tips to ensuring the supplier contract in front of you is right for you. Let’s make sure it won’t come back to bite you on the rear.

  • First of all understand the value of the contract to your business. Calculate the lifetime cost of the contract rather than just looking at the monthly or quarterly payments. It is this lifetime cost that you could be liable to pay again if your contract rolls over when you don’t want it to.
  • Next, assess the Terms & Conditions. Do they seem overly complex to you based on other similar documents you may have seen? Admittedly some contracts are just badly drafted but if, for example, the termination clauses seem very restrictive then alarm bells should start ringing. Small windows of time to terminate or specific ways of terminating i.e. by registered mail, suggest the supplier could be trying to catch you out. Termination can be very simple if the supplier wants to make it that way. Those that rely on their quality as a supplier to retain you as a customer rather a termination clause are preferable partners.
  • The contract is obviously more than just a series of termination clauses. So, next you need to look at where there may be unseen liabilities to you. If you are buying equipment what happens to the title at the end of the contract? Who pays to have it removed if you no longer need it? If it is a service contract does it allow for a reduction in cost if you stop using certain services? Does the contract automatically increase costs each year by RPI or other indexes? Was this shown on your proposal?
  • Next, you need to think of potential situations where you can no longer fulfil the terms of the contract. What happens if you stop trading? Does the liability fall to owners or shareholders? Can you assign the contract to another business? Does the contract allow you to negotiate any form of early release from it?
  • Next, make sure you do your due diligence on the supplier. Search the various review sites to see if there are consistently poor ratings and look at the reasons why. If the supplier is a small or medium sized regional firm do they have an in-house lawyer? This seems a strange thing to look for but if they are covering the cost of their own lawyer then it could be because they regularly undertake litigation on their customers. The alarm bells should definitely be ringing if this is the case.
  • Finally, make a note of when the contract ends and what termination you need to serve. Put this somewhere easily accessible for all and make sure others now the end dates too. A contract will only ever roll over if you forget to take action. Make the diary note and ensure you remain in control.

These tips are by no means exhaustive or a guarantee not to sign-up to the wrong deal. However, it is a reminder that you must continue to use your commercial sense when agreeing to anything that could have a large financial impact on your business in the future.