The importance of reviewing your contracts

It is common for us to be asked to review a contract – whether it is a building contract, a consultancy contract, a contract of sale or a procurement contract – just to name a few! Some people may ask “Why do I need a lawyer to review a contract when it just sets out what has been agreed?” And that’s a fair question. The main purpose of our review is to ensure that the contract reflects what you say has been agreed and to make sure the risk allocation accords with that agreement.

In conducting a contract review, some (and it is by no means an exhaustive list) of the key terms we look for are:

  • The basics

Whilst many would say it goes without saying, but the basics of the contract will, over time, turn out to be the fundamentals of a contract. That is information like:

  • Correct party names
  • Correct contract amount (this also includes any delay damages, interest, and adjustment rates)
  • Correct time periods and term of the contract
  • Correct detail of works / services / product (also just as important to note anything that is not included)
  • Correct reference to any attachments or documentation to be read in conjunction with the contract
  • Exit strategy 

We will ensure there is a fair way for both parties to exit the contract, and ensure you understand your rights. These terms cannot be one-sided as the provisions may then be found to be unfair terms. It is also important that the termination periods allow a party to engage new service providers or ensure the impact to business is minimal.

  • Variations

The contract must deal with a manner to vary the contract throughout the transaction/project.  Again, the procedure in the contract must be clear so there is no ambiguity for both parties.  Also, if it is a domestic building contract we are reviewing, then it must be compliant with the relevant legislation. Following from this is the parties’ ability to adjust the price – again this must be in a manner that is consistent with the parties’ intention and compliant with relevant legislation.

  • Conditions precedent

Are there any fundamental requirements which must be satisfied before the contract takes effect and is binding? For example, in the case of a domestic building contract, the builder must obtain the domestic building insurance, or the owner must provide finance. In a commercial building contract, it may be subject to a party providing relevant documentation.

  • Obligations of each party

It goes without saying that each party will have obligations under the contract – but does each party understand not only the obligations but also the consequences of non-compliance with those obligations? The contract should also cover any indemnities and releases in relation to the risk allocation under the contract.

  • Payment terms

The parties must ensure they understand the payment terms, the requirements for claims and payments and the effect of delays to payments. It is also important to understand if any security of payment legislation is relevant to the contract.

  • Defaults

The contract should clearly identify what constitutes a breach, what are the parties’ entitlements to suspend works, claim extensions of time, demand rectification (and this includes both during the term of the contract and perhaps after the contract ends, depending on the nature of the contract). Again, some legislation provides for specific requirements which must be followed in the contract terms.

  • Dispute resolution

At the beginning of the contract, most parties are not thinking about what happens if things go wrong – but the contract should! Therefore, the contract should clearly articulate what are the parties’ rights under the contract to resolve a dispute and these clauses should be consistent with the relevant legislation – for example, you cannot have an arbitration clause in a domestic building contract as this is not permitted by the legislation.

  • Special Conditions

Are there special requirements that the parties want to note in a contract that need to be included, and if so, are they consistent with the remainder of the contract to avoid any ambiguities in interpreting the contract as a whole?

Reviewing your contracts thoroughly or having a professional who does this for you helps to ensure you are fully protected. This is something that should be seriously considered given this is one of the biggest purchases of your life.

Chat to us if you’d like guidance reviewing your contracts.

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