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What should I look out for when entering into contracts?

It is key that you consider all the legal provisions and the potential impact proposed terms and conditions may have on your business

01 March 2021, at 8:50am

For all veterinary practices (and indeed, any successful business), having the right contracts in place is vital. Some examples of such contracts in a veterinary practice are:

  • Hire purchase, lease or rental agreements for equipment
  • The supply of goods used in the day-to-day practice, such as veterinary supplies, PPE, medicines or food
  • The supply of services to the practice, including clinical and general waste removal, utilities, telephone, internet and maintenance agreements for equipment, fire safety or the veterinary practice building

For all these types of contract, usually you will be accepting and agreeing to a third party’s terms and conditions and, therefore, it is key that you consider all the legal provisions and the potential impact these may have on your business. Below are some of the key provisions to look out for.

Exit or termination provisions

Most contracts are for a fixed term at a set monthly rate. But what can you do if you are not happy with the products or services that you are provided with?

In the event where you were to terminate the contract before the fixed term has expired, many contracts have termination fees that are payable. In many cases, you will still be liable for a large proportion of the outstanding fees that are payable throughout the fixed contract term (which may be reduced by a pro-rata percentage). This can be costly for any business, particularly as you would no longer receive the products or services you might be paying for. Therefore, always review termination provisions and consider carefully the impact for your business.

If you are looking to sell your business, either now or in the future, it is important to consider the impact that a long-term supply contract with restrictive termination provisions may have on the sale of your business. It may be that the buyer would not wish to take on this contract, in which case you could be liable for such termination costs pre-sale.

Assignment provisions

An assignment is the transfer of an existing right under a contract from one party to another. This provision is commonly used in business sales or intra-group reorganisations. If an assignment clause is within your third-party supply contracts and in your supplier’s favour, ultimately an alternative party may supply such goods or services to you and not the original supplier.

Often large companies will have the ability to assign their contracts to alternative parties without your consent; how-ever, should you wish to assign your contract to another organisation, consent will be required.

Other key provisions

Other key terms which may be particularly onerous or burdensome for either party to a contract could include the following:

Notice periods

Dependent on the type of contract, these can either be very short or lengthy. If the notice period is short (for example, a couple of weeks), although flexible, this could leave you looking for a new supplier with minimum notice. If the notice period is long (for example, six months), this will mean that you may be tied into the contract for a lengthier time than anticipated, especially if the services begin to become poor.

Payment terms

Look out for clauses that require you to settle invoices within a specific period following delivery or on a monthly basis. In particular, consider whether these payment terms fit with your business’s ability to pay and the systems you may have in place to pay invoices.

Price changes

Typically, there may be clauses which allow your supplier to increase prices year on year (or sooner) in line with inflation rates.

“Change of control” provisions

This is particularly important if you are considering selling your business in the future. These are commonly found in long-term contractual agreements such as hire purchase or lease agreements and buying group contracts. Such clauses may “trigger” termination of the contract in favour of the supplier (and to the disadvantage of your buyer!).

Dan De Saulles is part of the commercial team at Harrison Clark Rickerbys. He works with a wide range of clients, from global manufacturers to start-ups and specialist businesses such as vets’ practices. Dan provides sector specific information to help organisations navigate the GDPR.

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