A Clinical Review of Contracts

Thursday, April 28th, 2016

It’s about time someone had a clinical review of contracts regarding procurement. The hallmarks of a quality procurement contribution to their business are that i) procurement knows that contracts exist and ii) they know the detail of the contracts and risk exposure within them. We have a close business contact who works for a luxury yacht manufacturer. It seems their contract for sale is 3 pages long! Our experience working with shipbuilders has shown that the sea trials, testing and acceptance terms and conditions can be more than 3 pages long. However, we digress slightly, so let us return to the detail of contracts.

A clinical review of the ‘Force Majeure’ provision in a contract is typically very revealing. For each contract provision a checklist is a beneficial tool. For Force Majeure the following points warrant scrutiny:

  • What circumstances arising at the supplier shall be deemed ‘Force Majeure’? Is the buyer happy, for example, to allow strikes, shortage of raw materials, floods, fire and so on to be valid reasons why the supplier is exempt from performance? We would hope not.
  • If a ‘Force Majeure’ situation were to arise, how long can the situation continue before termination kicks in? We have encountered one situation when a strike continued for 6 months and the buyer could not terminate the contract.
  • When the ‘Force Majeure’ situation ends, what, then, is the provision to provide the goods or services? It depends what the contract provision states. It may be that the supplier can then restate the time for performance of the contract obligations.
  • Under what circumstances can the buying organisation claim ‘Force Majeure’ and what are the consequences? It depends what the contract provision states.

We can help you with a clinical review of your contracts. We are currently doing so for a client who is contracting with an international design company. Guess who wants to own the intellectual property rights? Please contact Ray Gambell on 01744 20698 or [email protected] to discuss.