Checklist: What to consider when reviewing terms and conditions for the purchase of goods and services (buyer’s perspective) – B2B (UK)

Introduction

This checklist provides guidance on reviewing supplier standard contract terms and conditions, as well as order forms and schedules, for the purchase of goods and services from business to business (B2B). It sets out key considerations and steps to take to mitigate risk from the buyer’s perspective.

The checklist addresses the following steps:

1. Consider whether the correct parties are entering into the contract
2. Review the terms and conditions
3. Review the order forms and schedules

At the end of the checklist there are explanatory notes corresponding to the relevant matter in the checklist.

This checklist can be used in conjunction with the following How-to guides: How to draft a business continuity plan, How to draft a confidentiality agreement, How to identify and assess bribery and corruption risk, How to negotiate and draft governing law and jurisdiction clauses in a commercial agreement and Checklists: Lawful processing of personal data under the GDPR, UK Modern Slavery Act reporting requirements: Section 54, Supplier contracts and unforeseen events, What to consider when reviewing a confidentiality agreement and Anti-bribery and corruption risk assessment.

Step 1 – Consider whether the correct parties are entering into the contract

Step 2 – Review the terms and conditions

Step 3 –Review the order forms and schedules

Explanatory notes

General notes

Please note that this checklist is not intended to be exhaustive. The following areas are outside the scope of this checklist but it is important for the buyer to be aware of them (when applicable) and to seek additional guidance regarding the following:

• services which may have an element of data processing and would require a data processing agreement to be in place in accordance with the provisions of the Data Protection Act 2018 (DPA). See Checklist: Lawful processing of personal data under the GDPR;
• services which may be subject to TUPE. See GOV.UK: Business transfers, takeovers and TUPE for further information;
• matters concerning intellectual property and its transfer or retention. See GOV.UK: Protect your intellectual property; and
• matters concerning Section 54 of the Modern Slavery Act 2015. See Checklist: UK Modern Slavery Act reporting requirements: Section 54.

Legal framework

This checklist covers the requirements under law and good practice. While large aspects of contract law are based on common law, the following legislation is also relevant to any contract:

• Supply of Goods and Services Act 1982 (SGSA) (where goods and services or just services are being provided)
• Sale of Goods Act 1979 (SGA) (where only goods are being provided)
• Unfair Contract Terms Act 1977 (UCTA) (business-to-business)
• Late Payment of Commercial Debts (Interest) Act 1998 (LPCDA)
• Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
• Contracts (Rights of Third Parties) Act 1999 (C(RTP)A)
• Modern Slavery Act 2015 (MSA)
• Bribery Act 2010 (BA)
• Corporate Insolvency and Governance Act 2020 (CIGA)
• Data Protection Act 2018 (DPA)

Step 1 - Consider whether the correct parties are entering into the contract

Step 1 of the checklist is a sequence of questions to help the buyer decide if the correct entities are entering into the contract. Only the parties to the contract or those benefitting from the goods and services (and identified in the contract) will be entitled to claim for breach of contract (but please also see the matters discussed in Step 2.24).

1.1 Consider whether the buyer’s contracting entity is the only company benefitting from the goods and/or services, or whether the contract needs to reference other entities/beneficiaries

Frequently it is only the named buyer’s contracting entity who is benefitting from the goods and/or services. Often the buyer will want its affiliates to also benefit from the goods and/or services, or possibly only for its affiliates (but not itself) to benefit. An entity is affiliated with another entity if they are a member of the same corporate group eg, where one company is a minority shareholder of another or where a separate third-party controls multiple companies that are affiliated.

If other parties are intended to benefit from the contract as well as or instead of the buyer, it is important that the actual beneficiary/ies are clearly identified and acknowledged by the supplier as a beneficiary within the terms of the contract. The reason for this is that, if the intended beneficiary suffers any loss under the contract because of non-delivery or non-performance by the supplier, but the loss is not foreseeable or in the contemplation of the parties at the time that the contract was entered into, damages cannot be claimed for that loss. Therefore, if it is not clear who the beneficiaries of the goods and services are, it may not be possible to claim damages in relation to the loss suffered by those beneficiaries if the supplier fails to deliver as the intended beneficiaries will not necessarily have been in the contemplation of the parties at the time the contract was entered into.

To ensure that the buyer and all applicable companies within the buyer’s company structure that need to benefit from the goods and services can do so, either list those companies or insert a broad definition of the group or affiliates (although be careful to ensure that, to the extent the buyer has any liabilities or indemnification obligations, these do not extend to the rest of the buyer’s group unless intended (please see the matters discussed in Section 2.11)).

The wording can be similar to this:

‘in relation to a company, that company, any subsidiary or any holding company or parent undertaking from time to time of that company and subsidiary from time to time of a holding company, each being a member of the group that may benefit from the goods and/or services.’

The benefit of a broad definition rather than naming specific companies is that it allows that list of companies to change over time, if required, as the buyer may acquire other companies, or dispose of existing companies, during the term of the contract with the supplier.

1.2 Ensure the supplier’s contracting entity is the company providing the goods and services 

To avoid potential risks, when the buyer enters into the contract, it should ensure that the supplier’s contracting entity is the same as the company providing the buyer (and/or its affiliates) with the goods and services, and that is the only company required to comply with and to perform the obligations under the terms. Failure to do so may result in the following:

• if there is no direct relationship between the buyer and the entity providing the goods and services, it is harder for the buyer to claim for failure to deliver; or
• if the company entering into the contract has no assets or revenue, it may be difficult to recover any losses from that company following a successful claim.

If the company entering into the contract is not the company providing the goods or services, consider a clause as set out below:

‘The Supplier shall procure that [insert name of the goods and services provider] provides the goods and services in accordance with the terms and conditions of this contract and the Supplier shall be responsible for making all necessary arrangements with [insert name of goods and services provider] for the provision of the goods and services to ensure that they are delivered in accordance with the [specifications/statement of work].’

See Step 2.7 below if the supplier is subcontracting any of its obligations.

Often the parties’ names may not themselves be set out in the supplier’s terms and conditions themselves (especially if they are standard terms and conditions). If this is the case, it should be made very clear (in any purchase order, invoice, quotation or other supporting documentation) as to who the parties are (by specifying their full legal name, registration number (if applicable), registered office address and country of incorporation), and then ensuring that any definitions in the terms of, for example, ’Customer’, ’Client’, ’Buyer’, ’Supplier’, etc are consistent with how the parties are referred to in the purchase order, invoice, quotation, etc.

Step 2 - Review the terms and conditions

Step 2 is a list of the key matters that a buyer should consider when reviewing supplier standard contract terms and conditions for the purchase of goods and services. As a buyer, before entering into terms and conditions with a supplier, it is advisable to first consult this checklist as a guide as, often, the contract is made on the supplier’s standard contract terms and conditions and is designed to reflect the supplier’s business model and risk appetite and is likely to be more heavily weighted in the supplier’s favour.

2.1 Check whether the definitions and interpretations and the order of precedence, are clearly set out in the terms and conditions

2.1.1 Definitions

Ensure that any words that have a meaning specific to the requirements of the goods and services are properly defined in the contract. This is important because a court will give an undefined word its ordinary meaning unless there is a specific meaning given to it in the contract. For example, the definition of a plug could be interpreted as just the plug itself without the wire attached to it. However, if in the contract the buyer wants the definition of plug to include wires, the buyer would need to set this out in the definition. Therefore, in this example, the definition of plug would be a ‘plug including the relevant wires’.

Often, the terminology used in the specification or statement of work (as applicable) does not follow the definitions used in the terms and conditions. This tends to happen because the specification or statement of work tends to be drafted by the commercial team or subject matter experts within the business without them necessarily having an appreciation of how this fits with the general contract, or even not having an awareness that there is or should be a contract under which the specification or statement of work is intended to sit. Although it may be difficult to achieve in practice, it is advisable (where possible) to have the terminology used in any specification or statement of work follow the same definitions and interpretation as set out in the contract to ensure consistency and ease of interpretation of the contract. This can be further strengthened by determining which of the documents (the terms or the specification) take precedence in the event of a conflict (see Step 2.1.3).

2.1.2 Interpretations

To ensure that the contract weathers the test of time, it is important to set out interpretations to be applied to the contract. For example, when a word is used in the singular it also includes the plural. To take the example of the plug as set out above, if the buyer is buying several plugs, the buyer does not want to have to say ‘plug or plugs’ on each occasion but for it to be known that when the word is used, it can mean either singular or plural depending on the circumstances.

Other similar examples of interpretation clauses are the following:

• that references to statutes include any amendments to them;
• if ’in writing‘ includes email or if it should be documented on a separate document that each party must sign; and
• that a reference to a person includes a body corporate and individuals.

2.1.3 Order of precedence

With terms and conditions for the purchase of goods and services, there are normally other documents which, together with the terms and conditions, form the complete agreement between the parties. For example, there may be a specification (if there are goods involved) or there may be a statement of work (if there are services involved). There may also be other documents such as purchase orders, invoices and quotations related to the goods and/or services to be provided or performed.

As there may be multiple documents forming the complete contract, and because some of the documents may be produced by the legal team and others by the business or commercial team, there is a likelihood that there may be discrepancies between them. It is important to set out which of the documents prevails in the event of a discrepancy between them, for example, if the terms state that the buyer is allowed a reasonable time to inspect (and to reject) goods following delivery, but the specification states that the buyer is deemed to have accepted the goods on delivery, which of the two should prevail?

Typically, the terms should take precedence as they tend to contain the legal rights and obligations (and there are normally greater and more formal consequences if the parties do not comply with them), and the specification or statement of work containing the commercial terms. However, where it is intended that the specification or statement of work (or perhaps specific sections within those) are intended to take priority, this should be set out clearly in the documents so that there can be no doubt. For example, it may be that there is a fixed financial liability cap within the terms which is intended to apply across all specifications or statements of work between the parties, but that there is good reason for one specification or statement of work to have a different cap, perhaps because the work involved is greater or has more value.

Also be careful of the ‘battle of the forms’ when it comes to purchase orders, invoices and quotations which may contain terms which conflict with the terms and conditions for the purchase of goods and services, for example, the terms and conditions may state that payment terms are 30 days but the purchase order states 60 days. Again, it is important to clarify in the terms and conditions which document should prevail in the event of a conflict.

2.2 Check whether the buyer needs to satisfy any pre-conditions prior to the supplier providing the goods and/or services

Some suppliers insert pre-conditions to supplying the goods and/or services in the contract. This creates an element of ‘buyer beware’. For example, the terms may specify that a supplier’s hardware will only work with certain software (that the buyer must pay for and licence separately from the supplier or a third party) or that the supplier will only deliver goods if there is easy access to certain parts of the premises. If the pre-condition is not met, the buyer may be prevented from being able to claim for non-delivery or non-performance.

2.3 Ensure the terms include a clear and definite requirement for the supplier to provide the goods and/or services by a certain date and time

The contract should always clearly specify the following:

• that the supplier will provide the goods and/or services; and
• the date by which those goods and/or services should be provided.

It is important that these elements are highlighted and made an express condition of the contract (the core reason for the contract being put in place). Without their inclusion, it may be difficult for a buyer to claim for damages or to be able to terminate for breach of contract by the supplier.

If the timing of delivery of the goods and/or time for performance of the service is a key part of what the buyer is paying for, it is helpful to try and include a clause which states that any time is ’of the essence’ in delivery of goods or performance of the services. This provides the buyer with the ability to terminate the contract for breach by the supplier and claim damages if the time is not met. See also clause 2.9 for further consideration of timing of delivery and use of the ‘time of the essence’ clause.

2.4 Ensure it is clear when title and risk in the goods passes to the buyer

It is important that the contract clearly states when title to the goods passes. It is usually a good idea for title in the goods to pass to the buyer on delivery or payment (whichever is the earlier). A supplier may sometimes seek to retain title in the goods until payment has been made. Buyers should seek to resist this where possible so that title (or ownership) vests in the buyer at the earliest opportunity.

Section 20 of the SGA states that risk in the goods will pass at the same time as title in the goods. The point at which that occurs depends on the nature of the goods, the intention of the parties, the terms of the contract to which the sale is subject and the provisions of the SGA. It is therefore important for a buyer to build an opportunity to check the goods into the contract and ensure they meet the contractual requirements before risk passes to them.

2.5 Check that the goods and/or the nature or purpose of the services is clearly described

As a buyer it is important to use clear express language to describe in detail what goods are being bought or which services are to be provided. It is also important that the nature or purpose of the services or description of the goods is set out in writing. This is so that expectations as a buyer are clear and it can be more easily established whether the requirements for the services have been met and/or whether the goods are fit for the purpose intended.

For goods, in addition to any express terms, section 14 of the SGA sets out the implied obligations relating to fitness for purpose and sets out that goods should meet the description provided. A clear description of the goods is then important for this reason too, so the description is easy to interpret.

For services, section 13 of the SGSA sets out the implied term for the supplier that it will exercise reasonable care and skill in performing the services.

Many suppliers look to exclude or restrict the liability of a seller of goods for breach of the terms implied by the SGA, and by the SGSA. This is possible only if the seller can show that the relevant exclusion clause (or restriction) is reasonable in terms of the reasonableness test in the UCTA. This reinforces the need, from the buyer’s perspective, either to ensure there are express terms included in respect of quality and fitness for purpose, and in respect of the exercising of reasonable care and skill, or to reject such exclusions or restrictions altogether.

Situations where the buyer is afforded the opportunity to inspect the goods before purchase or to be able to provide input into their design and/or manufacture before purchase may be harder to negotiate into the terms. The buyer is more likely to be given the opportunity to provide input and control on the final product instead. Consider carefully how this will be detailed in the contract as to what the supplier will do in this situation and how and when the buyer will be deemed to have accepted the goods.

For performance of services, in addition to the implied warranty mentioned above, it is common (and reasonable) for a buyer to seek to include a clause which states that the services must be performed by the supplier in accordance with the agreed specification (or statement of work), all applicable laws and using appropriately skilled personnel.

2.6 Review whether there is an immediate remedy for rectifying receipt of defective goods

Under consumer law, there is an automatic right to reject faulty goods, but the situation is different in B2B relationships. In terms of the SGA, there is no automatic right to a refund in a B2B contract, unless the contract makes it clear that faulty goods should be replaced free of charge.

An example of an express provision in the contract for a refund to be given to the buyer in the event of receipt of defective goods from the supplier is as follows:

‘In the event that the goods are found, within [x] days of receipt, to be defective, the Supplier shall promptly refund the Company the full price paid by the Company for the goods.’

The time to specify for the buyer to have the opportunity to inspect the goods before it is deemed to have accepted them should be whatever is a sufficient time to allow the buyer the reasonable opportunity to inspect the goods for damage or defects; it will depend on the nature of the goods involved as to what is a sufficient time given all the circumstances.

In the absence of an express contractual provision, the courts look for the most reasonable solution and consider the time of delivery and the time given to the buyer to review the goods for defects.

2.7 Where the supplier is subcontracting any of its obligations, ensure the supplier is responsible for the subcontractor carrying out its obligations

The supplier should be responsible for managing its subcontractors if they are being used to perform any obligations under the contract.

When the supplier is using subcontractors to perform the supplier’s obligations, the contract should state that:

• the supplier is ultimately responsible for the delivery of the goods and/or performance of the services;
• the supplier will procure compliance by its subcontractors with all applicable terms of the contract;
• the supplier is liable for any default of obligations by its subcontractors; and
• the supplier is responsible for ensuring that the goods and/or services are still delivered to the buyer if the subcontractor is no longer able to provide the goods and/or services (whether due to insolvency or otherwise).

This is relevant even if the subcontractor belongs to the same group of companies as the contracting supplier entity (see Step 1 above). Without such a provision, it may be possible for the supplier to absolve itself of all responsibility on behalf of its subcontractors.

As subcontractors are generally not a party to the terms with the buyer, the buyer is reliant on the supplier notifying the relevant subcontractors of all applicable terms of the contract. It may therefore be appropriate for the buyer to insist that the supplier itself puts in place or (at all times during the term of the contract) ensures that it has in place terms with its subcontractors that mirror the terms between the supplier and buyer (as far as is appropriate) – sometimes known as ‘flow-down terms’, or has terms that are substantially similar in place with its subcontractors.

2.8 Consider whether the variation clause requires both parties’ written consent and can only be agreed if signed by an authorised person?

Common law allows for a written contract to be changed subsequently by mutual agreement of both parties, whether oral or written. Altering a contract orally can cause complications as it can come down to one party’s word against the other as to what was agreed and misunderstanding or misinterpretation over what was agreed verbally and by whom.

Therefore, it is better to have a clear provision in the contract which states:

• that the contract cannot be varied except in writing by both parties; and
• such variation must be a written variation agreed by authorised persons of each party, rather than an email notification (where there is greater risk of the notification not having been delivered or going astray and no clear record of the details of the variation).

With supplier standard terms and conditions, it is common for there to be a unilateral right specified which enables the supplier to make changes without the need for the buyer to agree to those changes before they take effect. This should be resisted as far as possible to ensure that the supplier cannot unilaterally impose changes that may be unfavourable to the buyer (for example, imposing automatic price increases in line with, or greater than, RPI) and which conflict with the buyer’s original intended commercial purpose in having the contract in place.

2.9 Review whether the payment date and terms of payment are clear and comply with the buyer’s ability to pay

Ensure that the contract clearly states the expected payment date and that the buyer is aware of, and comfortable, with the provision from a practical and operational perspective. If the buyer does not have standard payment terms, it is a good idea to discuss with the buyer’s finance director and/or commercial team as to what is acceptable.

Be aware that, if payment provisions are not set out in the contract, the LPCDA creates an implied term that payment will be deemed overdue after 30 days (unless payment is to be made in advance). This 30-day period starts on the date of delivery of the goods or completion of the services, the date of receipt of the invoice or the completion of the agreed acceptance procedure, whichever is the latest.

A buyer should clearly have robust procedures in place to ensure that payments to its suppliers are made on time. However, late payment can sometimes occur due to simple human error (as opposed to a deliberate delay or non-payment). The buyer should therefore avoid a term in the contract which states that time for payment is of the essence, meaning that the supplier has the ability to terminate the contract for breach by the buyer and claim damages if the time for payment is not met (however see Step 2.3 as it may be that a supplier will push for time to be of the essence for payment in return for agreeing to make time of the essence in its delivery of goods or performance of services).

A better option for the buyer may be to accept a late payment interest charge (see Step 2.10) and/or to include an ability for a further payment reminder from the supplier before the supplier is able to enforce any contractual rights against the buyer for non-payment of undisputed fees.

2.10 Check if there is an express interest percentage specified for late payment and that the percentage is satisfactory

Unless the contract expressly states an interest rate for late payment, the buyer can be charged statutory interest if late in paying for goods or services. Under the LPCDA, a supplier is entitled to charge the buyer interest for late payment at 8% above base rate.

It is usually better for the buyer to have an express interest provision in the contract. An acceptable range in negotiated contracts is typically between 2% and 4% above base rate, which is more favourable to the buyer than the current default statutory figure.

2.11 Consider whether the liability provisions provide the buyer adequate protection in the event of an issue with the goods and/or services

Suppliers will usually insert an exclusion of liability clause which attempts to limit its liability for failure to fully deliver goods and/or to perform the services.

The following liabilities cannot be excluded:

• death or personal injury resulting from negligence (by either party);
• fraudulent misrepresentation (by either party); and
• under section 6(1) UCTA, breach of implied title and quiet possession warranties in contracts for the sale of goods and hire-purchase.

UCTA’s reasonableness test applies to any other exclusions and limitations.

Unless the reasonableness test is satisfied, then section 3 UCTA, prevents the use of an exclusion clause that attempts to:

• exclude liability for breach of contract;
• permit a contractual performance substantially different from what is expected; or
• in respect of the whole contract or any part of a contractual obligation, claim to allow no performance at all.

Instead of putting in such a wide and blatant exclusion, a supplier might try and limit liability for non-performance in other ways to satisfy the reasonableness test. For example, by:

• stating that the buyer can only claim service credits for failure to deliver or to perform;
• putting a time limit on recovering loss or on the remedies available, rather than expressly excluding liability in breach of the UCTA;
• providing the buyer with a right to have the goods repaired or replaced rather than to be able to claim damages for defective goods (or to have the services re-performed rather than to be able to engage a third party to perform them at the supplier’s cost);
• restricting what can be claimed as loss; and
• limiting the amount that can be claimed.

The buyer should carefully review any exclusions and/or limitations of liability in a contract to ensure they are reasonable including taking into account its organisation, the goods or services bought, the price paid for such goods/services, any mandatory policies or guidelines (or approval levels) its organisation has in respect of exclusions and limitations of liability, the potential risk or loss that may be suffered and the likelihood of that risk or loss occurring (whether it is a theoretical risk more than a practical one, or vice versa).

A supplier may also try to limit the type of losses that could potentially be claimed by a buyer by attempting to exclude specific heads of damage regardless of whether they are direct or indirect/consequential. For example, loss of profit and revenue are now often excluded whether direct or indirect/consequential. These specific heads of damage are often added to a general exclusion of indirect or consequential loss. The buyer should look at each excluded head of loss specified in the contract and assess each on its merits whether such exclusion fundamentally limits the buyer’s ability to make a claim for the most foreseeable damage it may suffer for its particular contract. For example, the buyer may wish to allow exclusion of indirect/consequential losses only, or to remove the exclusion completely.

Under section 6(2) UCTA, liability for breach of the statutory implied quality of goods warranties in contracts can be excluded or restricted if reasonable to do so. Most suppliers will seek to exclude this liability but, if the buyer has negotiated into the contract specific express requirements on quality (see Step 2.6 above), it will want to be able to have the option to claim for breach of contract by the supplier and for the supplier’s failure to meet such quality requirements. Care should therefore be taken before agreeing to exclude this implied warranty from the contract.

Check if the contract contains any cap or exclusions in respect of the buyer’s liability as, particularly with supplier standard terms and conditions, there is no cap or exclusion of liability from the buyer, meaning its liability is potentially uncapped and unrestricted. This will normally not be acceptable to a buyer, depending on its risk appetite, any insurance it has in place, and the commercial reward vs legal risk of entering into the contract. The supplier may try to resist any attempt by the buyer to include any caps or exclusions in respect of the buyer’s liability, but this can perhaps be used as a bargaining tool when it comes to negotiating the caps and exclusions in respect of the supplier’s liability.

Any caps or exclusions should be relevant and appropriate to the nature of the contract, the parties’ respective positions, rights and obligations and should consider where the greater risk should lay considering the commercial value as well as the strategic value of the relationship. Whilst on the face of it, it may seem fair and reasonable for the caps to be mutual, or, for a low value contract, for the supplier to limit its liability to the annual value of the contract, this may not necessarily make sense for the buyer as (depending on the nature of the goods or services) the potential losses it may suffer could in some cases be considerably higher than the fees it has paid to the supplier for the goods/services. For long term or high value contracts in particular, it is common to instead express the liability as the higher of a specified fixed sum or a % or multiple of the fees, for example, the higher of £5 million or three times the fees.

2.12 Ensure the supplier has given sufficient express representations and warranties to give assurance to the buyer that they have the right to sell the goods and/or to supply the services

It is advisable for the buyer to have express representations and warranties to mitigate the potential risks associated with the purchase of goods or services.

For example, to ensure that:

• there are no infringements of third-party rights which may impact the buyer’s freedom to be able to use, and enjoyment of, the goods and/or services;
• the supplier has the appropriate authority and/or licences to enter into the contract; and
• the supplier complies, and will at all times during the term of the contract comply, with all applicable laws and regulations relating to the supply of the goods and/or services.

2.13 Expressly require that the supplier indemnifies the buyer if the goods and services infringe third-party rights (including intellectual property rights)

The SGA and the SGSA have an implied warranty that goods and services should be free of encumbrances and come with a right of enjoyment without infringement. However, to protect itself from cases of infringement of these rights and third-party claims, the buyer should seek an indemnity from the supplier for any potential losses arising from a breach of this warranty (or if this warranty is deleted during negotiations, a similar warranty regarding non-infringement). This can give the buyer a quicker, easier and fuller recovery process than other contractual remedies as there is no need to prove loss with respect to an indemnity.

2.14 Confirm that in relation to the supply of services there is a duration of supply of services clause

It is a good idea to check for a clause specifying for how long the services are to be provided. This can also apply when goods are being maintained through a set of services set out in the contract (eg, hardware support and maintenance). If the contract term is not expressly set out, the parties will have to rely on a reasonableness test to decide on the length of the contract.

Some contracts, particularly those involving support or maintenance services, are expressed to renew automatically on an annual basis and that notice of termination can only be given within a specific period at or towards the end of the year. This can often be inadvertently overlooked, meaning buyers may miss the termination window and renew for another year (and be bound to pay annual fees for another year, with possible automatic inflationary price increases) without necessarily meaning to do so. Such terms should be noted and deleted if not acceptable. However, where a contract relates to services which are critical to the buyer, it may not be appropriate for a contract to terminate automatically at the end of the initial term as this would leave the buyer without access to essential services (and possibly unable to deliver onward services or products to its own clients).

Care should always be taken when considering the duration of the contract and any renewal clauses or automatic expiry clauses (see Step 3.1).

2.15 Check the termination rights if there are early termination rights and that they are sufficient for the buyer to terminate where needed, and any required notice period is clear

Termination rights should be mutual as far as is appropriate, for example, it is reasonable to include a provision which enables either party to terminate for the other’s breach (in particular if the breach is incapable of remedy, is persistent or is a material breach).

In addition, the buyer may wish to terminate the contract earlier than the end of the term. This could be for a number of reasons, for example:

• for convenience – if the buyer needs to have the flexibility to terminate mid-term for any reason (although it would be reasonable for a supplier to require reasonable notice relevant to the nature of the contract);
• for exclusive arrangements where the supplier has exclusivity if it meets certain targets but fails to meet those targets; or
• if, for any reason, the commercial arrangements do not go as originally planned. In contract law, there is no automatic right of early termination (other than for repudiatory breach which is an extreme scenario). Therefore, it is a good idea to include a clause for early termination for breach of contract (see above).

Note that it is only possible to terminate a contract for breach of any failure to perform under the contract, and not in relation to breach of warranties. If the buyer wishes to also be able to terminate for breach of warranty, this will need to be specifically stated as a remedy in the contract.

Often there is an early termination right for either party to terminate immediately upon the insolvency of the other party. It should be noted that this right has been limited by the CIGA, which applies to contracts concerning the provision of ‘essential services’ (as defined in CIGA). Where a contract is subject to CIGA and the buyer is subject to a ‘relevant insolvency procedure’ (defined in the CIGA and can include administration, the appointment of a receiver, liquidation, moratorium and a restructuring plan), the supplier will be prevented from terminating the contract and suspending the provision of the goods/services under the contract. CIGA does protect the right to payment for the goods/services provided during such insolvency procedure. There are some exceptions to CIGA (including certain types of, and sizes of, suppliers or where the supplier is also suffering hardship), but the overall intention of the Act is to help companies to be able to continue to trade during an insolvency process and to improve the chances of rescue. In case of uncertainty as to whether CIGA applies, seek advice from suitably qualified legal counsel.

The buyer may consider including a change of control clause as an early termination right.

The right to terminate for a change of control is helpful if:

• the supplier has been taken over by a competitor with whom the buyer does not wish to do business; or
• the buyer is concerned that the financial viability (or other commercial consideration or conduct) of its supply chain will be affected in some way by the change of control.

As early termination can have significant adverse consequences for the non-terminating party, any termination right should clearly set out any notice period required to be given by the terminating party, whether (in the case of termination for breach) the other party will be given the opportunity to rectify the breach before termination takes effect, if the notice must be in writing (usually not by e-mail), and to whom and where the notice should be sent. See also Step 2.23.

2.16 Ensure that the consequences of termination are clear

The contract must set out what happens when the contract is terminated or expires.

Consider including the following provisions:

• allowing payments made in advance by the buyer to be repaid if the contract terminates early;
• requiring the return or destruction of confidential information (or other property or materials of the buyer) at the buyer’s request and in accordance with its instructions; and
• if applicable, allowing certain legal clauses to survive termination (in particular confidentiality obligations).

2.17 If the supplier has the right to assign the contract, check if the supplier needs to obtain the buyer’s consent to do so

An assignment of the contract occurs when one party transfers the benefits of the contract to a third party (for example, the right to receive payment).

Where a contract is silent on assignment, both parties have the right to assign, so it is standard to have an express clause restricting assignment without the consent of the other party. The buyer (and the supplier) may want the ability to freely assign within their respective group of companies to allow for internal reorganisation perhaps. Consider whether this is something the buyer will need to include to allow for flexibility and if this is appropriate for the supplier also. If the supplier is reluctant to allow the buyer to freely assign, consider whether they would be happy to consider including wording so that they would not unreasonably withhold or delay their consent to an assignment by the buyer.

The buyer may not want the supplier to have such a right without the buyer’s consent because it may impact issues around performance of the contract (as discussed in Step 1). In the terms of the contract the buyer should seek to ensure that any assignment by the supplier requires the prior written consent of the buyer. The supplier may be reluctant to give the buyer the right to consent because the supplier may have contracts with multiple buyers and to have to seek consent from all of its buyers may be time consuming and impractical and also limit its ability to acquire and/or sell companies and/or to move operations around its group. Whether the buyer accepts this will depend on various factors such as the importance to it that it is doing business with this specific supplier than any supplier, its bargaining position, as well as any internal due diligence processes it is required to follow before engaging with suppliers (for example, Know your client procedures).

2.18 Confirm there is a force majeure clause

A force majeure clause may include events such as war, terrorism, earthquakes, hurricanes, acts of government, plagues or epidemics. Note that the term ‘epidemic’ or ‘pandemic’ incorporates Covid-19, so this does not need to be specifically mentioned.

An ‘act of government’ will include where the government body has imposed travel restrictions, quarantines, trade embargoes, or has closed buildings or its border. It is unlikely to apply to government.

If the force majeure clause is broadly drafted with no specific inclusions, it is a question of interpretation as to whether the parties intended a particular event to be covered.

It is a good idea to review the force majeure clause in the context of the goods and services being provided and to consider whether a specific force majeure event would genuinely impact the provision of the goods or services. Could the force majeure event be overcome by the supplier implementing business continuity measures for example? Does the buyer have measures in place to deal with it? See How-to guide: How to draft a business continuity plan, and Checklist: Supplier contracts and unforeseen events.

Where a force majeure event, or the impact of it, is within the reasonable control of the supplier, it would not be reasonable for the buyer to have to accept this as a force majeure event and so this is something the buyer could consider excluding from any definition of force majeure.

Another practical route is to include clauses in the contract directing the parties to negotiate in good faith to find commercial solutions to continue the delivery of goods or services in the event of aforce majeure event happening. This approach was effective for many commercial entities through the Covid-19 lockdowns and can, in some circumstances, be a preferable alternative to the suspension or termination of services, or supply of goods.

2.19 Is there a confidentiality provision protecting the buyer’s confidential information?

Confidentiality clauses are usually mutual, but it is a good idea to check that any confidentiality clause in the agreement protects the buyer’s confidential information as much as the supplier’s information. See Checklist: What to consider when reviewing a confidentiality agreement.

A mutual confidentiality clause should contain the provisions as set out in How-to guide: How to draft a confidentiality agreement.

Some contracts allow a supplier to use the buyer’s name on their website or in other advertising. In the contract the buyer should ensure that its consent is required for such use, and that it has the right to review in advance and to approve how its name is being used. A buyer may not want its brand to be associated with or used by the supplier, particularly to endorse its goods and services. In addition, the buyer may have specific trade mark usage guidelines or copyright notices which must be considered by a third party wishing to use its brand.

2.20 Require that the supplier obtains and maintains adequate insurance in relation to the delivery of the goods and services

There should be an obligation on the supplier to insure for the provision of goods and services, and any liabilities that may arise from this. The insurance provided and its limits are normally related to the value of the contract to the buyer and the nature of the goods or services being provided and will usually come down to a commercial decision by the relevant decision makers of the buyer.

The buyer should ensure that the clause grants it a right to see the insurance policies (or other evidence of insurance, such as a certificate and proof of payment of insurance premiums) on request. The clause should also require the supplier to maintain insurance throughout the term of the agreement or until delivery of the goods, whichever is the later. The buyer may want to request that the supplier notes the buyer’s interest on the supplier’s insurance policy. The supplier may not agree to this as it allows the buyer to claim on the policy directly which could affect its credit score. An alternative is for the supplier to ensure it has an indemnity to principal cover under its insurance policy which then enables the buyer to be able to bring a claim under the insurance policy as if it were a named insured party (even though it is not named specifically).

2.21 Check there is a provision to ensure that the supplier complies with anti-corruption and anti-bribery legislation

Although it is not a statutory requirement to include an anti-bribery provision within a contract, it is good practice for a buyer to insert a clause allowing it to withdraw from the contract should the supplier be found to have engaged in bribery activities. See How-to guide: How to identify and assess bribery and corruption risk and Checklist: Anti-bribery and corruption risk assessment.

2.22 Review how the supplier is ensuring its supply chain complies with modern slavery legislation

Section 54 of the MSA requires that large companies that carry out business in the UK and that have a total turnover of £36 million or more must prepare a statement and publish it on its website setting out the steps it has taken to ensure that there is no slavery or human trafficking in its business or supply chain.

It is sensible for the buyer to insert a provision into the contract requiring a supplier to contractually confirm its compliance with the MSA. This demonstrates that the buyer has made some effort to check that there is a method of ensuring compliance and provides an option to terminate the contract for breach if the supplier is not compliant. See Checklist: UK Modern Slavery Act reporting requirements: Section 54.

2.23 Check the notice provision setting out where notices are required to be given and the method of serving notice

This provision should clearly set out where and to whom notice should be given in the event of breach, termination or any other matter relating to the contract. There should be:

• a named role(s) within the organisation to whom notices are sent for each of the respective parties, and any additional copies that may be required to be sent to the organisation’s legal or finance departments;
• a process on how to serve notice; and
• a provision stating when it is deemed to have been served.

Having a clear notice clause ensures that any notices are not lost within an organisation, and that it is clear when service of the notice was made, if this should later be disputed and questioned, for example in a court.

2.24 Are any rights of third parties excluded in accordance with the Contracts (Rights of Third Parties) Act 1999?

The C(RTP)A excludes certain goods contracts, but it generally applies to most contracts and allows third parties who benefit from the contract to claim under it, even if they are not signatories to it. If the buyer or supplier do not want any third parties to the contract to have the right to claim in terms of the contract under this Act, an express clause is required to exclude the Act. Conversely, if the buyer wants certain third parties to have the right to claim, this should be clearly set out in the contract. An example might be company affiliates who benefit from the provision of goods or services, but who are not the named contracting party.

2.25 Consider whether there is an entire agreement clause and whether other arrangements or documents have been included as forming part of the contract

An entire agreement clause makes it clear that the contract constitutes the whole agreement, and that no previous statements made before the contract was concluded form part of it (for example, marketing materials or contract negotiations).

The clause can also limit a party’s liability for misrepresentation (eg, loss caused by statements made before the contract was concluded) and other potential claims.

It is worth noting that, in terms of AXA Sun Life Services Plc v Campbell Martin Ltd and Others, [2011] EWCA Civ133, if a party wants to effectively exclude liability for a representation made prior to the contract, a clear statement to that effect will be required. Therefore, when a buyer is reviewing an entire agreement clause, and where it is relying on certain matters of which a supplier has made the buyer aware, it should ensure that the clause makes clear that those specific statements or documents have been relied upon by the buyer and that they form part of the contract.

2.26 Ensure that the contract is governed by the laws of England and Wales and the courts of England and Wales have jurisdiction

The ideal position for a buyer is to ensure that the governing law of the contract is England and Wales, and that the jurisdiction of the contract is the courts of England and Wales. See How-to guide: How to negotiate and draft governing law and jurisdiction clauses in a commercial agreement.

Step 3 – Review the order forms and schedules

Step 3 considers the bespoke elements of standard terms and conditions, which are more likely to be found in the order forms and schedules attached to a contract, rather than within the standard terms and conditions. While in most organisations these are usually negotiated by the commercial team, they do form part of the contract and should be reviewed in conjunction with the standard terms and conditions. See also Step 2.1.3. Where the order forms and schedules are provided separately from the terms, it should be made clear in all applicable documents, which terms apply to the relevant order form and schedule, and vice versa (in particular where the buyer has managed to successfully negotiate the supplier’s standard terms, it will want to ensure that any document that references the supplier’s standard terms is intended to instead be governed by the amended terms as negotiated). These documents can also be easily overlooked when finalising the terms especially if they are negotiated by different teams within an organisation. It is therefore important to check that the terms contain or attach all applicable order forms and schedules and that these have all been completed as required before the terms are finalised and signed by both parties.

3.1 Check that the start and end dates of the contract, and goods and services, are clearly set out in an order form or schedule including relevant specifications or statements of work as agreed, and rights to be owned by the buyer

Often the start and end dates of a contract may be overlooked where there are separate terms and an order form or schedule. It should be made clear in the relevant order form or schedule as to the specific date on which the relevant order is intended to start and end (rather than simply referring to a date of signature for example, as this is often not the date on which the parties intend the term of the contract to start). This will also be key for determining whether delivery of goods or services has been made in accordance with the terms and, if not, whether a party can bring a claim for breach by the other party. It is therefore essential to be very clear on specific dates rather than using vague wording.

The specification (or statement of work, as applicable) of the goods and services to be provided should be set out in the order form and/or schedule in as much detail as possible. This should include, for example, details of the type of goods, volume of the goods to be supplied, or specific models. For services, this should clearly set out what services are being provided, the location(s) where the services will be provided, the frequency, hours, key personnel, etc. Set out required certification or regulatory standards, if applicable. It should also set out any assumptions or restrictions on product or service use. This avoids vagueness in the contract, particularly with respect to the matters discussed in Steps 2.4 - 2.6.

If the supplier is creating anything bespoke for the buyer, consider whether intellectual property rights clauses need to be included to ensure that the buyer owns the relevant rights and is able to use them freely, or if the buyer instead needs a licence from the supplier to be able to use those rights. For example, there may be deliverables being provided by the supplier which the buyer may wish to own (and assume it is paying for ownership). This will need to be sufficiently addressed in the contract.

3.2 Consider whether the agreed service levels are a sole remedy for non-delivery, late delivery or poor performance

Suppliers often include a term in their contracts which state that service credits are the buyer’s sole remedy for breach by the supplier of, or failure to meet, specified service levels/key performance indicators (KPIs). Service credits are, however, rarely sufficient to compensation to the buyer for losses it suffers from the supplier’s breach of, or failure to meet, specified service levels or KPIs. It is important to ensure that the buyer is not restricted from seeking additional compensation by ensuring that its ability to pursue its normal contractual remedies are not excluded.

For example, if a service-level agreement requires that the supplier pays to the buyer a certain amount as a service level credit if a service is not delivered within four hours, but delivery of the service is actually delayed by 24 hours, as the delivery was so far removed from the buyer’s expectation set out in the service levels the buyer should not then be prevented from being able to claim further damages, as well as receiving a service credit.

It can also be useful to have other practical remedies written into the contract to sit alongside service credits. These can include clear reporting and record-keeping obligations, a right for the buyer (or its auditors) to audit the supplier’s records, remediation plan obligations or escalation processes to senior management.

3.3 Confirm that the price is clearly stated in the order form, including whether it is inclusive or exclusive of any relevant taxes or surcharges that may be due in relation to the goods and/or services

The supplier’s fees or costs should be clearly set out in the contract, including an itemised breakdown of fees where there is more than one item for which the buyer is paying. It should also be clarified in the contract whether such fees or costs are to be made as a one-off payment or by way of instalments. If the buyer is to make payments in instalments, then the period of payment (monthly, quarterly, etc) and specific dates should be clearly specified.

If there are any additional ad hoc costs that may be payable by the buyer, these should be made clear in the contract, for example, by including a costs schedule, price list or other document which clearly sets out any additional costs that the buyer may incur and how and when these become payable, and if the buyer’s prior written consent should be required prior to the supplier incurring these additional costs. If the supplier is charging the buyer on a time and materials basis rather than a fixed price, there should be a cap included on the time and materials, and the supplier should be required to submit evidence of these costs to the buyer as part of the invoicing and payment process.

The buyer should make sure that the contract clearly sets out whether any customs or other duties and taxes (which may be due in relation to the goods and services) are included in the payment, or whether they will need to be paid separately. If the buyer needs to pay these separately, confirm that the amounts that are likely to be due are both known and acceptable to the buyer’s commercial team.

Goods and services are often quoted as being exclusive of taxes and surcharges which are payable in addition to the fees as referred to above. These taxes and surcharges may not be specifically stated and may be an additional expense which the buyer was not expecting. While it may be possible to reclaim certain taxes (such as VAT) some surcharges may not be reclaimable and would be an additional cost.

If there is a provision which excludes charges which cannot be reclaimed, then, as the buyer, it is advisable to ask the supplier to specify the surcharges that are due or ensure that the fees payable are inclusive of such taxes and surcharges.

3.4 Consider if there are any other bespoke conditions which apply to the relevant goods or services

There may be other terms which are specific to a particular product or service. If the parties are considering multiple orders/specifications/statements of work, it is sensible to include a section in the relevant order to enable the parties to include additional terms which are specific to that particular product or project or to vary the terms of the underlying contract (if applicable) to the extent relevant. For example, if there is any personal data of the buyer being processed by the supplier as a result of the provision of the goods or supply of the services, the buyer will need to consider whether appropriate clauses dealing with the processing by the supplier need to be included (and in respect of any subcontractors of the supplier who may also be processing personal data of the buyer).

Is it important for the buyer to ensure that the supplier does not solicit any of its employees and/or customers of which it may become aware during the performance of the contract? If so, this should be included as an express provision in the contract.

Additional Resources:

GOV.UK: Business transfers, takeovers and TUPE
GOV.UK: Protect your intellectual property
Supply of Goods and Services Act 1982 (SGSA) (where goodsand services or just services are being provided)
Sale of Goods Act 1979 (SGA) (where only goods are being provided)
Unfair Contract Terms Act 1977 (UCTA) (business-to-business)
Late Payment of Commercial Debts (Interest) Act 1998 (LPCDA)
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
Contracts (Rights of Third Parties) Act 1999 (C(RTP)A)
Modern Slavery Act 2015 (MSA)
Bribery Act 2010 (BA)
Corporate Insolvency and Governance Act 2020 (CIGA)
Data Protection Act 2018 (DPA)
AXA Sun Life Services Plc v Campbell Martin Ltd and Others, [2011] EWCA Civ133

Related Lexology Pro content

How-to guides:

How to draft a business continuity plan
How to draft a confidentiality agreement
How to identify and assess bribery and corruption risk
How to negotiate and draft governing law and jurisdiction clauses in a commercial agreement

Checklists:

Lawful processing of personal data under the GDPR
UK Modern Slavery Act reporting requirements: Section 54
Supplier contracts and unforeseen events
What to consider when reviewing a confidentiality agreement
Anti-bribery and corruption risk assessment

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