Getting the contracting process right helps ensure that you have a clear agreement and reduces the risk of disputes. Here is summary of stages that an ideal contracting process should follow from initial contact to the end of the contract.
1. Non-disclosure Agreement
Although there are laws that serve to protect information that is confidential in nature and to prevent a person who has received confidential information from gaining an unfair advantage by using or disclosing it without the consent of its owner, the scope of the protection offered is not always clear.
What is ‘confidential’ can vary from one business to another. It can range from financial information and contacts to marketing strategies and product secrets. Before entering into discussions with another business or person that may require you to share confidential information, it is advisable to enter into a confidentiality agreement (sometimes called a non-disclosure agreement or NDA), as early as possible, to protect the disclosure and use of such information.
Whilst any final contract should contain robust confidentiality provisions, it is important to remember that not all projects / ventures will proceed to contract. In these circumstances having an NDA in place will help prevent businesses from using your confidential information to compete with you.
Tip: do not to try “seal the deal” in an NDA with too much detail– a separate contract on the “deal” itself should be entered in to (see point 3 below).
2. Heads of Terms
Before entering into a contract, there is always a period of discussion and the sharing of information as the deal is agreed (see point 1). Once this period has completed and where you wish to proceed with the contract, you should prepare and sign a set of heads of terms to document the principal terms you have agreed and on which a contract can be based.
You can download a free Heads of Terms document here.
Tip: remember heads of terms are, generally speaking, not legally binding – you should enter into a contract to formalise a commercial relationship and not rely only on the heads of terms, as you may not be able to enforce them if you need to (see point 3).
Clear and robust commercial contracts are central to the success of all businesses. The challenge for any organisation is to ensure that your contractual relationships are properly documented.
Obtaining legal advice before entering into contracts helps to ensure that that your business is adequately protected and the principals covered in your heads of terms are documented effectively and clearly.
Tip: if you receive a contract from another party, always seek legal advice on its terms and the implications it could have on your business before signing and entering in to it. If it has been prepared by them it is likely to be drafted in their favour and it may not reflect the deal that you have agreed.
4. Contract Management
Unfortunately, a well drafted contract does not mean the end of managing a commercial relationship – what is equally as important, is how that contract is managed for the duration of its term.
It is easy for parties to vary the terms of a contract (unintentionally) by conduct and for people on the ground to breach the terms of a contract because they are not aware of its terms.
Keeping your employees and representatives up-to-date with new contracts and their obligations towards them, is vital to ensure that these are complied with, and any disputes relating to a breach of a contract are minimised.
Tip: revisit any contracts that you have already entered in to, to ensure you are complying with their terms, that they have not expired and that they accurately reflect the way the parties actually work together.
Obtaining advice on terminating a contract or the consequences of it coming to an end is just as important as obtaining advice on entering in to one.
Even where termination provisions in a contract may seem clear (for example, you may terminate upon providing 4 weeks’ written notice), there may be other obligations on your business that must be complied with on termination (such as, returning documents and continuing to comply with confidentiality obligations following termination).
Terminating contracts can sometimes lead to messy, unwanted fallout. Our award winning dispute resolution team can help you with any disputes that arise relating to your contracts upon termination / leading to termination.
Tip: Seek advice before terminating a contract, but if you do terminate, ensure any notice provided to terminate a contract meets the contract terms (such as: provide notice in writing, first class post, delivered to the registered office address).
If you would like to discuss any of the above information, or require advice or training in relation to contractual relationships, please contact, David Miller, Partner and Head of Commercial Contracts on 01332 340 211 or via email by clicking here.