Things To Consider When Reviewing A Contract

This blog will give you an indication of the things to consider when reviewing a contract. Having a contract does not always mean that you are protected. It is often the simple things that are missed, as an example the creator of a website will hold the copyright of the design unless a formally agreement has been made to pass it to the client!

Contracts are designed to define the relationships between all parties involved and become legally binding once signed: they can also be legally binding even if they are not signed provided that there is evidence showing that the parties have demonstrated an intention to be bound by the terms. This could be something as simple as an email, with this in mind I would recommend that all documents that are issued prior to the signing of the contract should be marked as “subject to the completion of a formal contract”. You could also think about marking your communications as “without prejudice”. This means that the said piece of communication cannot be used as evidence in a court of law. Do be wary of marking all communications as “without prejudice” as this could impinge on the relationship you are trying to build, I prefer to use “subject to the completion of a formal contract” but only on relevant documents.

As mentioned, verbal exchanges could also be deemed as an acceptance of a contract, although it can be much harder to prove. What you should do is follow up important meetings or telcos with an email outlining what was said so that there can be no doubt.

Contract Terms

When considering contracts you should be aware that there are two types of terms:

• Express terms: these are terms that are agreed by all parties and are usually contained as clauses within the contract document itself (be aware that they could also be agreed through other means, i.e., a verbal agreement).
• Implied terms: these are terms that are derived through existing laws or statutes (as an example, if you were working in the UK, you would expect the marketing agency you engage to abide by the data protection act 1998).

Heads of Terms.

The “Heads of terms” is a document, which is signed by all parties who intend to enter into a formal contract. It is also known as a “memorandum of understanding” or a “letter of intent”. Such documents are not legally binding.

When creating a heads of terms you should make it clear that the contents are not exhaustive but are merely there as a guide.

Non-Disclosure Agreements.

When you start the process of identifying a new marketing agency or contractor you need to bear in mind that you are likely to be sharing sensitive information. To minimise the risk of this data being shared with other parties you should consider having a non-disclosure agreement in place.

“NDAs are written agreements which record the conditions under which you disclose information or ideas in confidence. You are strongly advised to consider using one if you are going to disclose any information or ideas which you wish to be kept confidential”. (Intellectual Property Office, 2011)

The Business Contract.

There is no absolute format that must be adhered to when developing a contract, indeed as we have already discussed, they could just be verbal. There are however some standard terms that do appear in most documents:

Parties

The contract should start by listing the names and addresses of all the parties involved. The names should be the legal entity and not a trading name.

Scope

This is a statement highlighting the scope of the agreement between the said parties. It should include timings and payment summaries.

Definitions

The definitions are explanations of each key word, abbreviation or acronyms used in the contract.

Interpretation

The interpretations used in a contract are designed to avoid confusion, examples include:

Words importing the singular number include the plural number and vice versa.
Words importing any gender shall include all other genders.
Person includes a body corporate.

Term

The term will specify the length of the contract.

Timescales

This is an element of the contract that is often forgotten. You should include it if you have key milestones that you need to meet. Due the complex nature of project plans, it is usual to include the details of the timescales in an attached schedule (i.e., materials that could be in the main contract but are moved to the end to provide better clarity). You may also want to consider introducing penalty clauses if the timescales are not achieved.

Company Obligations

If there are going to be penalties for failing to achieving specific clauses then you should also have a list the specific obligations for your company (if you are the agency providing the service then you must ensure these obligations are in place: you will be within your rights to negotiate additional ones if you feel that there are critical elements which are missing).

Agency Obligations

The main contract should only contain the high level clauses (the details can be in an additional schedule). If you are working at an international level or targeting an agency from a different country then it may be prudent to also include a list of the key statues or legislations that need to be adhered to.

Description Of Goods Or Services

A detail description of the goods or services being commissioned must be provided, again it is common to have this element as an attached schedule. The timescale clause (highlighted earlier) could also be incorporated in this section.

Payment Provisions

The contract must outline the payment provision for the delivery of the goods or services in question. You should also state if the value is inclusive of taxes (like the VAT in the UK) and delivery.

Limitation Of Liability

It will be prudent to establish the extent of the legal responsibility of each party to the contract, particularly when there are more than two involved. For example, “No parties shall have any liability to the other parties for a claim of loss of profits…”.

Insurance and Indemnity

Insurance and indemnity clauses are an expressed obligation to compensate the indemnified party by making a money payment for some defined loss or damage.

Force Majeure

All contracts should have a Force Majeure clause (which is defined as an event that is a result of the elements of nature or beyond the control of either party, as opposed to one caused by human behaviour). Examples include natural disasters or civil unrest.

Early Termination

This element of the clause will set out the circumstances under which the parties can terminate the contract. Common examples are breach of contract or a party going into liquidation.

Change Of Control

You should include procedures for a change of ownership or controlling interest in the commissioned companies. This will be particularly important if the controlling interests move to one of your competitors.

Dispute Resolution

You may want to include a set of procedures to manage disputes. This is common if there is a regulatory body overlooking the work.

Confidentiality

Earlier we highlighted a possible need to implement a non-disclosure agreement when discussing business details with potential business partners. This clause may be an extension to that or it could be something completely new. If it is new then you must identify what information is being protected and the circumstances in which it can be used or disclosed.

Intellectual Property Rights

This is particularly important in the marketing arena because creative designs will remain in the ownership of the designers unless it has been explicitly agreed that ownership passes to the commissioner.

Applicable Law

The contract must indicate which law governs the contract. For example, “this agreement will be governed by the laws of England and Wales and both parties submit to the exclusive jurisdiction of the courts of England and Wales in the event of any claim or dispute in connection with the terms”.

Signatures.

The contract should be signed and dated by all parties. It should be clear who has signed the contracts and what capacity they have within the organisation. I would recommend that you restrict the signatures to company directors only, that way you can be sure that the said individual has the authority to sign.

This ends the brief outline of “what to consider when reviewing a contract”, it is relevant to both commissioners and contractors. I must conclude by saying that the contract terms must be “fair and reasonable” to all parties otherwise working relationships will deteriorate and no party will succeed in its ultimate business goals.

DISCLAIMER: Do NOT rely upon this guideline when drafting an actual contract. Each company should have all of their purchase, sale and other documents associated with buy/sell agreements reviewed by their individual legal counsel prior to submission to a customer or contractor. The purpose of this outline is to provide examples of the typical elements contained in a buy/sell contract.

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Alan Shaw

Director & Senior Lecturer at Strategic Planet & Leeds Beckett University

Dr Alan Shaw is a Senior Lecturer and Marketing consultant focusing on a range of sectors. His main interests are in strategy development, social marketing, digital marketing, advertising, consumer behaviour and marketing application.