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Bleak outlook demands updated contracts

03 September 2008

Many contracts have been signed in better times. Now the economic outlook is not as bright. Whatever the nature of the agreement (IT, outsourcing, supply etc), there may be a feeling that a contract is no longer providing the value you expect.

Areas of concern which can then emerge include:

• The length of the notice period
• The fairness of the pricing provisions
• The definition of services
• A lack of KPIs
• The workability of change control provisions etc

What can you do?

Even with contracts where you fear there is unlikely to be room for manoeuvre, it is worthwhile having a careful look at the contract terms to evaluate where you stand.

In this context you will need to:

• Understand the Contract - what does it really require the Supplier to deliver or the Buyer to purchase?
• Understand the implications if you need to walk away from the Contract. In that context you will need to consider what your liability might be and/or how to position yourself best to minimise the risks.
• Work out what leverage you have - is income important? Alternatively improved performance in return for the commitment to continue the Contract might be an option.
• Police performance properly - you will need to ensure all your team understand the value of paying real attention to performance.
• Watch out for black holes (e.g. non-compliance with applicable laws) - it is sometimes possible to find a platform on which to negotiate if the provisions of a Contract have been drafted in a way which might make it unenforceable.
• Factor in all the implications of an exit - consider ongoing liability, the risk of wrongful termination, the protection of your IPR and your ability to arrange a hand over to a new service provider.
• Look out for any signs of financial stress. This may give you further room for manoeuvre. As always, full information and your use of that information is likely to be key to your maintaining and improving your position.

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Andrew Pickin

Partner
T: 08700 86 5032
I: +44 (0)115 906 5032
E: andrew.pickin@shoosmiths.co.uk