Standard form contracts - on your termsSep 07, 2022
Business to business contracts are often "standard form contracts", meaning that one party will have a pre-drafted the contract to make it easier and simpler (and often quicker) to provide the contract to the other party, such as contracts between a supplier and its customers. Sometimes the reverse will apply - the customer itself will have a standard contract that they provide to all of their suppliers.
It is commonly understood that these standard form contracts are not open to negotiation or amendment, and are to be taken on an "as is" basis.
We have previously discussed the inherent problems with standard form contracts - particularly with the risk that they contain "unfair contract terms" - see our previous blog "Have you entered into an unfair contract?" As noted in the blog, the following questions are relevant when considering whether a contract is unfair:
- does the contract allow one business, but not the other, to change or cancel the contract, or to limit or avoid their obligations?
- does the contract penalise one business, but not the other, for breaching the contract?
- are there terms within the contract that are not reasonably necessary to protect the stronger business?
Shire Legal recently assisted a client who was a supplier of services to a number of larger organisations. These larger organisations often would provide our client with a standard form template contract which set out the terms of engagement - including the time within which our client's invoices would be paid. As is often the case, these template contracts are drafted with the drafter's best interests in mind, and therefore it is not uncommon for such contracts to not provide for what happens in the event that the customer does not pay the supplier's invoices in time - in this case, our client's invoices.
Having learned from previous experiences of having to chase customers when invoices remain unpaid, our client wanted to ensure that future contracts it enters into provide payment terms such as:
- interest being payable on all outstanding amounts, from the first overdue date until the date that the invoice is actually paid;
- the supplier having the ability to recover other costs and expenses incurred in pursuing the outstanding amount, such as debt collector fees, service fees and court costs; and
- the supplier also having the ability to terminate the agreement immediately if an invoice remains outstanding by more than 90 days.
To enable our client to have these terms incorporated into any future contracts, we drafted a short "Amendment to Agreement" document which our client will produce to its customers, as additional terms to the main (standard form template) agreement. At the very least, it will open up the dialogue between our client and its customers to negotiate terms that suit both parties.
So, if you are provided with standard form template agreements by your customers (or indeed, your suppliers), keep in mind that the terms are often open to negotiation, so that you can ensure that you enter into the contract on your terms.
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