Pandemic system stress test

The pandemic has tested us in so many ways. For some businesses, having digital systems or digitalising (i.e. transforming a business with technology) has helped them survive in this new socially distanced world. Although surviving is important, it is always better to thrive and make change work for your business where possible. Looking at your systems, how have they dealt with the pandemic and how might they deal with another wave or waves of the pandemic? What areas can be improved? How can you go about improving them? Is digitalisation the answer?

As part of digitalising or otherwise improving your business, you may need to consider: (a) new suppliers that can provide you with innovative solutions; (b) negotiating alternative offerings from existing providers; or (c) terminating current arrangements in favour of a new one. This article discusses some points to keep in mind from a contractual perspective when doing these things.

Negotiating new contracts

The first thing to ask is what type of contractual arrangement is it. Is it a bespoke contract or standard T&Cs? If it is standard T&Cs, is there room for negotiation? If you do negotiate changes, are those changes clear and unambiguous? This is important because if the terms are unclear, they could be unenforceable on the grounds of uncertainty and/or increase the likelihood of a dispute occurring. Is everything you have agreed set out in the contract? If the relevant terms have not been included or incorporated (e.g. by reference) into the contract, those terms may not apply. The effect of this will vary depending on how important the relevant terms are – but it could mean you have entered into an agreement that is substantially different to the one expected.

Variation

If you are negotiating changes with an existing provider, it is important to work out whether you are; (a) terminating your existing contract and entering into a new one; or (b) varying terms of the existing contract. If it is the latter, what does the variation clause of the existing agreement say? If you do not comply with the variation clause, this could result in any changes being invalid, because the agreed procedure was not followed. You also need to be careful about the form the variation is required to take. If you are terminating the existing contract and entering into a new one, you will need to ensure that the ‘old’ contract has been brought to an end. The ‘new’ contract will need to clearly state this (often it will say that the new agreement “supersedes and extinguishes all previous agreements…”).

Termination

If you intend to bring a contract to an end, what does the contract say about term and termination? Are there provisions setting out the consequences of termination? Are there any clauses that apply outside of the termination clause? Are you permitted to terminate at this time? If not, what is your window for terminating (for example, do you need to provide a defined period of notice before the contract automatically renews). If the contract prevents termination for convenience or on notice, you could approach the provider to see if they will agree to you terminating early. If you are amending the term or duration the agreement, the variation clause will be important, for the reasons mentioned above.

If you are going to terminate under the existing contractual terms, one of the most important clauses is the notice clause, because termination usually involves notice and therefore you will need to abide by that clause to the letter. If you do not, the notice may be invalid and you may be in breach of contract if you incorrectly believe you have given notice and the contract is at an end, when in fact, it is not.

If you need assistance in drafting, reviewing, negotiating or terminating a contract, we are here to help.