Terms and conditions case study - creating a platform for business success

A local SME had issues with their contracts, as a number of dealings with customers and suppliers had ended up with our litigation team. This was an expensive method of sorting out problems and the same issues came up again and again.

The client need for legal help

The vast majority of customer and supplier interactions used the company’s standard terms and conditions. They were last drafted a number of years ago and staff were often being questioned on parts of them, and rather than making their jobs straightforward (as standard terms and conditions are supposed to do), they were making their day-to-day roles more difficult. The existing terms and conditions were creating trust issues between the company and their suppliers and customers.

On one occasion, it was also clear that a staff member hadn’t been following the prescribed method set out by the company and, unfortunately, it meant that a large contract was arguably unenforceable and the company spent a lot of money settling out of court and losing that customer.

Finally, parts of the terms and conditions were out of date and they didn’t reflect how the business now operated.

Next steps- review and update

We were asked by the company to have a look at their contracting situation, with a view to:

• updating the drafting on the terms and conditions;

• provide solutions on risk management of future issues; and

• staff training, where required.

Updating the contract

We spoke with the contacts within the business who use the terms and conditions, as well as the directors who had instructed us.

This is always a useful exercise for us to do. It gives us feedback on the issues that face the staff who are using the document on a day-to-day basis, including the pushback they get from customers and suppliers and collating what the regular issues are.

In addition, we also conducted a review of the documents (terms and conditions for both the customers and the suppliers), to ensure that they were up to date with the current law, such as the amendments to data protection laws. Bear in mind that if your business is dealing on a B2C basis, that those terms would also need to reflect the rights that consumers have.

Contracts are a key part of risk management

The contract review was important to ensure that the business’s current appetite for risk was aligned with how the terms and conditions (and the staff that use them) view the risk and potential liability.

Specific areas that needed addressing included :-

• limitation of liability - we discussed and advised on how the limitation of liability clauses were set, making sure that they were in accordance with acceptable limits.

• force majeure - we also discussed and amended the clauses in the drafts in relation to force majeure (events which were outside of our client’s control) and how fluctuation in costs were dealt with, with the business now having more control to pass those costs on to the end customer.

• supplier terms were also updated - so that the business had more transparency and input into any cost amendments.

• we updated and clarified events of default - these clauses are a key part of terms and conditions. Unless there are clear and unambiguous terms to set out grounds for termination and/or required remediation after default, the chances of a risky and costly dispute increase very significantly.

Staff training on using the business terms and conditions

Many mistakes and misunderstandings create legal and commercial risk with the practical implementation of contracts. Having a contract which you and your staff do not understand and not having a good understanding of contract law principles creates risk.

To address this we provided some training for our client. The main focus of the training was around the consistent implementation of the terms, the absolutely vital point of contract formation and the risks of inadvertent variation.

Contract formation had been implemented in most cases previously, but because of uncertainty or, in a small number of cases, the absolute determination to sign up a new piece of business whatever the consequences, it needed to be tidied up. In such cases, contracts can inadvertently amended by either the conduct of a staff member or correspondence- the danger being that in getting the deal over the line, key parts of the terms are amended.

The "battle of the forms" can also cause confusion- even if a business has terms and conditions, the other side may present their own terms (usually a larger company insisting on using their own). The staff training also encompassed this situation and reiterating the importance of making sure it is clear which contract is in force.

Some training made sure that a system was implemented so that each end customer was signed up to the updated terms and conditions, with training provided on the issues that they would get asked about and how to deal with them. The team at the business also came up with a solution they were happy with to keep signed versions.

The short and long term benefits

The business needed our expertise and strategic guidance on the update of the terms and conditions and by streamlining and implementing a process which was easy to use but compliant, the staff were confident in their new suite of documents and their role in using them.

In terms of the long term, the company was now able to operate in a self-sufficient manner and also with the knowledge that the terms and conditions were up to date and they now had a team who they could trust to use them correctly.

Once the terms were sent to and explained to the end customers and suppliers, the business would have a smooth flowing ordering and contract system, as the trust between them had been established and the staff at the business would be able to concentrate on providing a great service again to their customers and suppliers.

For further information or to discuss how we can assist you with your business contracts, please contact Phil Parkinson at phil.parkinson@taylor-rose.co.uk