Self-drafted or general off the shelf contracts are not adequate for those businesses who want to manage their liability, a case from www.lexology.com (legal website that explores business issues and law) shows how self-drafted or off the shelf contracts just don’t manage the risk within a business and can lead to businesses issuing contracts that are simply unenforceable.
The High court found that an exclusion clause contained within the standard terms and conditions of an IT supplier was unenforceable leading to an award of damages of £110k in favour of the Client. The case (Kingsway hall hotel limited V red sky IT limit  EWHC 965 (TCC). Legal firm RPC (www.rpc.co.uk) commented on this case saying, “from this case it was clear that there existed a clear disconnect between red sky’s standard terms and conditions and the manner in which red sky sought to sell their software. Suppliers should ensure that their standard terms accurately reflect the sales and contract process. Any gap between the process envisaged in the standard terms and the actual process may result in clauses being unenforceable. Standard terms and contract processes should be reviewed regularly with legal advisers to ensure enforceability and maximise their benefit”.
It’s not uncommon for a client to sign a contract where the content is not understood, the origin of the information unknown or is drafted by an unqualified hand? There are a variety of reasons for this; one of the key reasons is that legal services appear to be an expensive luxury rather than a must have for your business. Generally this type of contract is unenforceable and this can cause a problem for both parties when a dispute arises.
The danger of contracting with an unenforceable contract is expressed in an article posted on lexology (www.lexology.com), “Am I being unreasonable”? by legal firm Nabarro LLP, the article comments on the importance of a contract containing clauses that are reasonable and in-line with the Unfair ContractTerms Act 1977 (UCTA), “it is always been in a contracting party’s interests to consider the reasonableness of the contract clauses; take advice on whether the court would be likely to uphold the clause should it be subject to challenge”. So knowing what’s enforceable and what’s reasonable defines the credibility of the contract.
Its key to remember that this is not just a legal issue but is a business issue, a think tank aimed at creatives/designers called Creative Latitude (www.creativelatitude.com/articles) believe that the contents of the contract is a key client communication, “If we have to take a deep breath and are physically uncomfortable when we present the contract, that uneasiness is bound to be communicated to our client. The last thing you want to do is cause your client to see the worried look on your face and wonder, what the heck is in this contract”?
David Reilly, director at Create Ts and Cs commented, “Our client acquire bespoke contracts ratified by a solicitor so they know that the contract is enforceable (deemed reasonably). It’s critical that their potential customer knows they have gone to the trouble to invest in a contract that is enforceable and protects both parties”.
Considering the investment of time and money to contact clients, coffees and lunches, sales systems and marketing campaigns, it makes sense to continue the good work and invest in a professionally written, assessable contract relevant to your business ensuring its ‘reasonable’ and ‘enforceable’ throughout.
Making your business an attractive proposition for an investor or potential buyer can be a time consuming task. Apart from the usual business day to day of ensuring you are making sales and keeping your clients happy while increasing profitability; there is the added preparation of documentation to allow the key business info to be viewed from the outside and understood by a potential suitor. The process of viewing and interrogating this documentation is generally classed as ‘due diligence’.
According to sellingbusiness.ca, “despite all the uncertainty regarding the due diligence process; some principles that if applied can assist the process and increase the chances of reaching a satisfactory sale. For example it’s advisable that the sellers prepare a large portion of the documentation needed for due diligence before putting the business up for sale, especially financial and accounting information and legal documentation”. This principle is applied to either investing-in or buying a company”.
Colin Munro, Director at Mi City, www.mi.uk.com comments on the need to impress an investor, “Small businesses need to protect their intangible assets in order to build value and if investment is to be attracted at any future date then clear legal definitions will be a requirement of the investor. It is much better to agree terms with a supplier prior to commissioning any work, clarifying any areas of ambiguity. This will help to prevent future disagreements and potentially costly negotiations”.
So, having the right contracts is important as it shows investors or buyers you can protect your asset and build value within the business. David Reilly, Director at Create Ts and Cs, “in my experience investors or potential buyers will feel a certain reassurance that you have gone to the trouble of putting in place the correct contracts with suppliers and customers to assist in managing risk and help contract in a manner that assists the process of getting paid on time, protecting your IP and generally providing a professional framework to protect both parties while doing business. Also a contract can demonstrate residual value where contract duration is signed up to; for example, a signed contract ensures a certain amount of revenue and value for the contract period. i.e. a 12 contract should yield 12 months revenue, which of course is attractive to a potential investor or buyer”.
It’s not unreasonable for a potential investor or buyer to be interested in a company that has invested in its own business processes and formally manages their client relationships.
Bill Christie, FCIBS is a Chartered Banker and Managing Director at CER, www.cerbusinessfinance.co.uk, who assists businesses identify the appropriate funding for their company commented “I cannot stress strongly enough the essential requirement for a business, no matter how small; start-up or indeed established to have an “approved” set of Ts & Cs; specifically designed for your business. Yes, you can obtain Ts & Cs from the Internet but they may well not be designed to provide the right protection that you and your business require. When discussing a funding/business proposal with a prospective client, I consider that Ts & Cs are just as important as Business Insurance”.
We recently drafted a bespoke set of terms and conditions for PHP Developers, Malt Blue Ltd and they’ve been kind enough to blog about the difference and added value bespoke Ts & Cs have made to their business.
Now maybe it’s just a matter of perception in my own mind here; maybe it is. But ever since going through this process, the tone and quality of the interactions with clients has definitely gone up a number of notches. I see myself taken more seriously and remunerated as such.
But maybe it’s something else. Maybe, it was just coincidental timing – I don’t believe that. Irrespective of what it is, I know two things:
- I’ve had a good solid look and think about my intent in running a freelance business
- I’m more focused and professional in my conduct
This isn’t to say or infer that I wasn’t before. But going through this process changed me, because of all the topics that I started considering in such depth; which in turn, led me to consider other aspects of how the world sees my freelance business. Topics such as letterhead, email signatures, they way that I write and communicate with clients and so on.
It’s always great when we receive such positive feedback from our clients. How can we make a difference with how you perceive your business? Contact us today.
According to Earl Nightingale, famous author and broadcaster “You can measure opportunity with the same yardstick that measures the risk involved. They go together”. He continues, “Wherever there is danger, there lurks opportunity; whenever there is opportunity, there lurks danger. The two are inseparable”.
In many cases, especially with smaller business, (start-up or SME) negotiating with larger organisations, there lives both an opportunity and danger. There is of course an ‘inequality’ in bargaining power. This equality is generally apparent during negotiations. Most large organisations have legal departments and it’s not uncommon for a small company to be pitched into a negotiation involving a corporate legal department.
It’s during these situations that larger organisations may question or request your Terms and Conditions and subsequently changes to your contract or certain clauses omitted. In certain circumstances company contracts are compared and each clause examined individually; this is commonly known as the ‘battle of forms’. Experienced businesses use Terms and Conditions to position themselves professionally with potential clients and outline how they want to do business; for example getting paid, liability, protecting their IP etc. A well drafted contract will also help the business manage risk and ultimately save money by avoiding unnecessary disputes.
The following 5 points are worth remembering before you enter into negotiations;
1/ If you don’t have a set of Terms and Condition, then its leads to the smaller company inevitably following the only contract available, that’s the contract of the larger organisation.
2/ Smaller businesses can readdress the balance when negotiating with a larger player; its how you ask that counts and having Terms and Conditions gives the SME an advantage.
3/ Such negotiations can be tense and feel overwhelming, a company with a niche product or service can be in a powerful bargaining position and not realise it, distracted by events or potential size of the opportunity.
4/ Don’t feel flattered; you will end up working harder for less and obtain less appreciation for doing so, vanity costs money!
5/ Be confident, it’s ok to feel pressured by a larger company’s demands. However the same rules apply when doing business with smaller businesses, if you have the capability to deliver services, it’s profitable for you and the risk and scope can be managed then its worth negotiating or perhaps in certain cases worth walking away.
The subject of terms and conditions traditionally for Creatives is usually the last issue on their mind. It’s also common for Creatives to acquire someone else’s terms and conditions or write their own contracts. Unfortunately the credibility of these contracts is only tested in times of dispute; so contracts drafted in bullet points format or acquired from an unreliable source generally don’t contain the correct enforceable clauses to assist the business to resolve issues that arise.
Similarly, those many companies who choose to do business on a handshake, as honourable as that sounds, find the frailty of the contract is exposed when a dispute arises, as there is no real legal detail or proper fall back position to solve disputes. Writing down the details of how you’d like to do business is a simple idea and best captured in a contract that is tailored to the relevant business sector and business type.
There seems to be a natural resistance to formality and detail, yet during times of disagreement it’s often the details that will protect a business.
Terms and conditions can be for many Creative businesses a way for outlining ‘how they want their customer to engage with their services, from quotation to completion of the work.
Colin Hardie, Director at Ubisan a web commercialisation business commented, “ Create Ts and Cs listened and managed to distill the more specific elements of my business into a coherent and highly professional set of bespoke terms and conditions…. something that would have been impossible to achieve with an“off the shelf” alternative”.
This also means, outlining your payment terms, the IP ownership and managing scope creep through effective ‘sign off’ processes captured in the Terms and Conditions. All these issues are central to ensuring you get the work done on time and in-line with your Creative business strategy while getting paid, which can assist cashflow and promote sustainablity within the business.
David Atkinson, Director at design agency CO2 Design, said,” Before we got a bespoke set of Ts and Cs, we like many others got a set from the web or looked at others, now we have a ratified contract that communicates clearly with our clients. Also, we’ve managed to reduce the amount of debt within our business to a level we can manage, which has helped the business”.
Its also common for some potential clients to request a set of Terms and Conditions prior to doing business, if you don’t have a relevant set of Ts and Cs, then you’ll simply accept the terms offered by the client or in some cases run the risk of signing up to a contract which is packed with clauses no one knows the consequences of signing up to! Meaning you get paid and agree to the terms according to the clients terms and conditions.
David McCullough, MD of Urban Niche, a social media marketing business based in Edinburgh commented, “Urban Niche contracted Create Ts and Cs to draft a bespoke set of Terms and Conditions to support our bid for NHS business, I am delighted to say we won the business and believe Create Ts and Cs contributed greatly to our bid and ensured we had the correct commercial contract; helping us to present our business professionally and prepare appropriately for our negotiations”
Having a relevant, sector focused contract in-line with the Creative business is one way of avoiding unnecessary disputes and allows the Creative business owner to concentrate on doing the work they enjoy doing .