Hope is not a Contract Strategy

One of the key problems with contracts is knowing how and when to use them effectively.

This decision should be part of a clear contract strategy. Even if you don’t have a mature contract strategy [read more], any strategy is better than hope! As fellow speaker and internet marketing expert, Ian Brodie, tells me:

Hope is NOT a strategy

No strategy? No problem!

Let me tell you a story, from a case about a popcorn factory, which I tell regularly when discussing contracts with my talk audiences.

Once upon a time, a buyer approached a seller and asked the seller to provide a fire suppression system for a new popcorn factory in Pontefract. The contract discussions progressed nicely, a price was agreed, a standard specification sent and other relevant terms bandied around…

They hit a metaphorical brick wall: neither the seller nor the buyer had any clear contract strategy. Instead of knowing how to record their agreed terms and what further terms needed discussing/agreeing/recording, they adopted a haphazard approach.

The seller sent their quote which referred to their own T&C, but forgot to send those T&C to the buyer.

The buyer sent their confirmation which referred to their T&C, but did not send those T&C to the seller.

What was missing?

Neither of the companies seemed to know:

  • how to create a contract
  • how to record their agreement with precision – instead of relying on standard T&C
  • what terms they ideally wanted in a contract including scope, aims, risks
  • how to negotiate between competing T&C
  • which aims took priority
  • which risks should be taken into account (eg catastrophic fire) & who should bear those risks
  • how to manage the contract process
  • how to self-audit their contract process to spot mistakes

The result was that when a dispute occurred (and a multi-million pound claim was raised), they had first to determine the terms of the contract between the parties.

And the difference?

  1. If the seller’s T&C has been part of the contract, and correctly drafted, the seller might have limited its liability to mere thousands of pounds.
  2. If the buyer’s T&C had been part of the contract and correctly drafted, the buyer might have recovered its full £110m claim.

Instead a mere (!) £34m was paid by the seller (or its insurers) to the buyer. Both suffered hugely from their respective failures to have a coherent, clear contract strategy.

What should you do?

If this story has made you want to do better next time, then you could:

  • audit and simplify your contract processes to meet your needs
  • agree all relevant terms
  • create fair terms to build trust
  • agree the key aim for your projects and ensure your T&C reflect that aim
  • exclude supplier liability for losses that the buyer can reasonably be expected to insure against (see Goodlife v Hall [2017])

Cases: Trebor Bassett Holdings Ltd (2) The Cadbury UK Partnership v ADT Fire and Security plc [2012] EWCA Civ 1158; Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767

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