Doctors are having to deal with more and more contracts. Chris Inson gives his top tips to consultants and private GPs for getting to the finish line of signing a commercial contract and concluding what may be a lengthy negotiation
Having robust legal contracts in place that detail your commercial arrangements with your customers, service providers and suppliers is essential if you are going to develop strong relationships and grow your business.
The purpose of a contract is to set out the rights and responsibilities of each party so that you know exactly what is required of you and what you can expect from the relationship or the particular transaction.
Prior to the actual preparation and execution of your legal contracts, you will probably have gone through some form of negotiation, even for the most mundane provision of services. Here are a few ideas to get you focused on achieving the best negotiated position for your legal contracts:
- Be prepared. Before you enter into any negotiation, carry out research on the other side. This will help you understand their position and how that might dovetail in with your own needs and aspirations.
- Be clear what you want to achieve from the negotiations. You should always have clear objectives. Consider what is of fundamental importance to you and also decide in what areas you are willing to compromise.
- Meet face to face. Although many contracts are negotiated without any face-to-face meetings these days – due to the benefits of modern technology – you should attempt to hold at least some of your negotiations in person, particularly for strategically important or high-value contracts. Do not forget that, ultimately, you will be working with these people, so establishing a good rapport at this stage will help further down the line.
- Always have a clear agenda prior to your meetings. This will help you to keep the meeting ordered and focused on your key objectives.
- Keep written records of your discussions. Take detailed notes of what has been agreed during any phone calls or meetings. It is often the case that disputes or uncertainties arise during the drafting of the contract, so evidence of what was said and agreed during the negotiation can help to avoid this.
Assuming discussions have gone well and you have reached a negotiated position with the other party, what next?
It is now time to prepare and agree your legal contract, setting out all of the agreed terms and imposing legally enforceable rights and obligations on the parties. When we think of legal contracts, it probably conjures up images of dense-written documents, but – beware – writing is not always required. A handshake, conversation, phone call or email can all be sufficient to create a legally-binding contract.
It is clearly preferable to put commercial contracts into writing to ensure certainty as to its terms. So it is often advisable to include a statement that all negotiations are ‘subject to written contract’ in any letter of intent or heads of terms which may be produced at the start of the negotiation. This can help to avoid a contract being formed inadvertently.
The following key clauses always deserve time and attention:
- An accurate and comprehensive description of the goods and services to be provided or performed. These would normally be set out in a schedule to the contract.
- Even if the parties have not addressed any other term of the contract in detail, they almost will certainly have considered the price to be paid. This should clearly be set out in the contract, together with any price variation mechanism.
- Stipulating the price is only half the job and the contract should also clearly set out payment dates. It is usual to provide a mechanism whereby interest can be charged in the event of late payment.
- Time for delivery – Beware of ‘time of the essence’ stipulations if you are performing any services. Any missed dates could then render the contract capable of termination by the other party.
- Dispute resolution – Unfortunately, contractual relationships do sometimes go wrong. It is therefore important to think about what will happen, if that is the case, at the time that the contract is prepared. For example, you may wish to stipulate some sort of mediation procedure in the first instance to try and avoid a costly and protracted dispute going through the courts.
- Indemnities – Always be wary of giving any indemnity in a commercial contract. An indemnity is an undertaking by one person to meet a specific potential liability (including legal fees) of another and can work out quite costly.
- Excluding or restricting liability – Consider whether there should be a cap on the level of liability that can be suffered under the contract or whether certain losses should be excluded in their entirety. It is frequently the case that a supplier of goods or services will attempt to limit liability to the actual value of the goods or services that are being provided.
‘Best’ and ‘reasonable’ endeavours
- It is frequently the case in legal contracts that a party is subject to using either its ‘best’ or ‘reasonable’ endeavours to carry out a specified obligation.
- These phrases have always given rise to debate and confusion, and, as a result, are frequently subject to interpretation by the courts. In simple terms, any ‘best’ endeavours obligation requires a person to take all reasonable steps capable of producing the desired results in the circumstances, even if they are to their commercial disadvantage
- This is an onerous obligation. ‘Reasonable’ endeavours is less stringent. While using ‘reasonable endeavours’ may still involve some limited expenditure, a party is entitled to take into account its own commercial interests.
Read, read and read again!
- It is vitally important that the whole contract is read before it is signed. Even if you have a lawyer to advise you on the contract, you should always do this yourself to ensure that you are happy with and clear as to its terms and there have been no last-minute sneaky insertions.
When you have finally agreed your legal contract, make sure it is signed and by the right person. It is surprising the number of times contracts are agreed but, due to unavailability of the signatories at the time, they end up never being signed at all!
A contract does not need to be signed to be legally enforceable and a course of dealing can be established if the parties are demonstrably acting in accordance with its terms. But if you have gone to the time and trouble of agreeing a written legal contract, why take the risk?
There are legal requirements as to who can sign certain legal documents on behalf of a company or a limited liability partnership and you need to take care or specialist advice to ensure these are met.
It the relevant person is not available to sign, then you can get round this by putting powers of attorney in place to allow others to sign on their behalf.
Chris Inson is a corporate partner in the healthcare team at Capital Law LLP
Independent Practitioner January 2012