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Could a Review of Your Contracts Bring Cost Savings?

Thursday, 1 August 2013

Once contracts have been signed and implemented, it is often the case that they do not see the light of day again. However, after the toing and froing of negotiations has come to an end and both parties have signed on the dotted line, it is important not to simply leave those important documents in a filing cabinet gathering dust; particularly if they relate to long-term relationships.

On-going Contract Management

On-going contract management—including regular reviews of all of your commercial contracts—is essential, particularly if financial circumstances have changed for your business or the other party, or if the economic situation generally has altered.

With economic conditions having changed dramatically in the last few years, what seemed a good bargain four or five years ago, may no longer be commercially acceptable for your business. Many might assume they are ‘tied-in’ to unfavourable contract terms, but often those agreements will contain specific legal provisions that allow the terms to be reviewed in certain circumstances.

Reviewing Terms and Conditions Regularly

Reviewing terms and conditions regularly is also a great way to make sure your business is getting the most value out of its agreements. It may simply be that you are able to renegotiate the terms, but you could also make large cost savings by making use of provisions that you haven’t had to use in the past and may even be unaware of.

For instance, you may be able to charge more interest on commercial debts, change your pricing structures in line with the Retail Prices Index or even make use of a ‘break-clause’ allowing early termination of an unfavourable contract.

Even a simple review of invoicing and payment terms can lead to a new, stricter enforcement policy for your business that can increase your immediate cash-flow.

When looking to make cost savings, it’s also important to review contracts for “exclusivity” provisions – if there is no legal requirement to buy from a particular supplier, you may be able to source cheaper elsewhere, without even having to formally terminate a contract.

Seek Legal Advice Before Renegotiating

Contract law is a complex area and care should be taken when negotiating with other commercial parties. Without proper care, your actions, informal discussions and emails can form part of a formal and binding contract. There may also many technical legal issues to consider such as on termination of a contract to avoid costly litigation in the future.

Furthermore, it is important to bear in mind commercial realities and business relationships when seeking to renegotiate commercial agreements.

Therefore, it is important to seek legal advice from an experienced commercial solicitor. To make sure your business is getting the most out of its contracts, please contact Michael Czechyra via e-mail or by telephone on 0207 611 4848.

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