Commercial Contracts

Contracts supplying goods to consumers or businesses will require different terms, as consumers are entitled to enhanced rights within the UK. Terms governing cancellation and termination rights and restricting the supplier’s liability will therefore vary depending on whether the contract is on a B2B or B2C basis.

All contracts for the supply of goods will require terms providing for the type and description of the goods sold, how an order can be placed, payment, delivery and collection, risk and title to the goods, storage or any haulage service required.

The type and nature of the supply of the goods will impact the type of terms required. For example, international long-term supply agreements will require an order and delivery process that reflects the long-term relationship of the parties and the geographical distance involved, such as delivery by reference to agreed Incoterms to factor in responsibility for freight and import tariffs.

Contracts supplying services to consumers or businesses will require different terms, as consumers are entitled to enhanced rights within the UK. Terms governing cancellation and termination rights and restricting the supplier’s liability will therefore vary depending on whether the contract is on a B2B or B2C basis.

Contracts for the supply of services will require terms providing for payment, the type and description of the services (including specification and standard of service delivery), any output or deliverables to be provided, time for performance and whether any service levels are provided.

Whether a business contracts with its customers online, via the telephone or email, on a doorstep basis, or from a bricks-and-mortar shop, will determine how the contract with that customer comes into effect, and what laws and regulations apply to the contract.

Businesses operating via a website only (e-commerce) should ensure that they have e-commerce terms and conditions in place. E-commerce terms contain terms that are unique to the online selling of goods, such as how the order is placed and accepted, how payment is made, and how and where the customer is entitled to cancel their order. Online businesses selling goods to consumers should also consider implementing a privacy policy and cookies policy to aid compliance with data protection law. More information on E-commerce can be found here

A well-drafted contract should act as a tool offering project-management capabilities to the parties who have entered into it. A contract can include provisions allowing the parties to agree on variations to the price of goods or services periodically, such as an annual increase in line with inflation or by reference to an agreed index.

Also – the contract should set out the mechanism that the parties should follow in the event of a dispute. A common approach is to require the parties to enter into good faith discussions with senior representatives of each party, and should such discussions fail, attend mediation before resorting to court proceedings. By agreeing on a dispute resolution process before entering into the contract, parties can help avoid a protracted dispute in the future and increased legal costs.

Without written terms in place, a contract for the sale of goods or services shall be an oral one. Oral contracts are legally enforceable, however, leave parties vulnerable to dispute as there is a lack of certainty as to terms.

In the context of the sale of goods and services, an absence of written terms leaves key areas of the relationship unclear: what exactly do the services entail? What quality, nature and colour are the goods? When will the goods be delivered and who shall pay for delivery? If a customer is unhappy with the quality of the services provided, are they entitled to a refund?

Operating on written terms removes the uncertainty and helps avoid disputes in the future.

For a business that sources a range of goods and services from various suppliers, operating on its own terms enables the business to harmonise its operations, and ensure a consistent standard of service delivery is achieved. This can help alleviate the administrative burden of monitoring numerous contracts which may have differing payment terms, delivery timescales and service levels.

Customers can attach to their purchase order form (or reference by hyperlink to their website) and their standard terms and conditions when placing an order with a supplier. However, customers seeking to operate on their own terms and conditions should ensure such terms are incorporated into the contract. Many suppliers will wish to operate on their own standard terms. A customer must therefore take steps to ensure that their terms take precedence.

For terms and conditions to govern the contractual arrangement between a business and its suppliers, must be incorporated into the contract. Businesses, therefore, need to implement processes that bring the terms and conditions to the attention of the other party(s), and ensure that such terms are accepted by the other party(s).

With many businesses now operating by attaching their standard terms and conditions to their purchase order forms or quotations, or by including a hyperlink to their terms on their website, the risk of failing to properly incorporate terms has increased. This should be monitored regularly to address the risk such approach poses. Further information on incorporating terms and conditions and mitigating risk can be found here.

Pro-customer contracts should contain terms governing the supply of the goods or services that the customer is purchasing, such as the description and quality of the goods or services being supplied, the time of delivery, any service levels and payment terms.

Pro-customer terms should reflect how the customer’s business operates such as delivery timescales that accommodate the customer’s stock rotation schedules, delivery methods that are time and cost-effective for the customer, and credit and payment terms which complement the customer’s payment runs.