Businesses continue to face economic uncertainty in 2023, with double-digit inflation and elevated interest rates significantly constraining consumer spending.

In this article, we hope to set out some key tips to consider when facing negotiations in the pre-contract stage to help ensure your business remains flexible and protected.

Price Review

It is vital to keep your costs in check; having a price adjustment clause in your contract can help protect your business against rising costs.  Price adjustment clauses are an important feature, especially in today’s economic landscape, in ensuring that a contract can remain commercially viable for you and the other party to the contract. Price adjustment clauses are a contractual provision which give you the ability to adjust the contract price, usually in response to certain trigger events.

The main things to consider are when to trigger a price adjustment and how often can it be triggered. If the other party is trying to insert one, then you may wish to cap it to prevent a potential high rise in the contract price.

However, it is crucial that a price adjustment clause is clearly defined so that both parties are transparent on the mechanism and can understand the risks and effects a price adjustment clause has.

If you’d like to know more, please click here.

Force Majeure

Force majeure clauses can essentially free the parties to a contract from liability or obligation when an extraordinary event or circumstance beyond either party’s control occurs.

When including a force majeure clause, a key area to consider is what is defined as a force majeure event. There may be factors specific to your business that need to be taken into account and could come under the definition or are there certain events you wish to not be included.

Finally, ensure that you are clear on the requirements surrounding notifying the other party of a force majeure event to make certain that you legally free yourself from liabilities or obligations.

Limitation of Liability

A further legal clause that can help prevent financial loss in these turbulent times is a limitation of liability clause. In a contract, limitation of liability clauses have the ability to limit, or even exclude, a party’s liability and certain types of loss. The parties to an agreement should consider the potential liabilities that may arise and then assess accordingly the limitations which may be appropriate and reasonable.

These clauses can be crucial in protecting you from financial losses in the event of legal action.

There are multiple areas of legal liability that could affect your business which you should protect yourself against, such as breach of contract, negligence, misrepresentation, and infringement of intellectual property rights. Ensuring that you have a well drafted and reasonable limitation of liability clause in your contract prevents your business from being left open to financial losses.

Insurance

Another area for consideration is the insurance in your contracts. It is possible to receive first-party insurance policies which can cover the costs for multiple unexpected events, such as a disruption or a crisis. The various types of insurances to consider are business interruption policies, force majeure insurance, supply chain insurance and event cancellation insurance.

Termination

Last, but certainly not least, termination clauses can provide you with the ability to effectively cancel a contract if it is no longer beneficial to you or your business. With the continued cost of living crisis, being able to cut back on spending where possible is important. When including a termination clause, it is vital to consider the notification period for terminating the contract and any consequences involved with the ending of the agreement.

Read more from us on termination in an article with BusinessInsider here.

If you have any queries or need any assistance relating to the drafting or advising of commercial contracts, please do not hesitate to contact us at commercial@berrysmith.com or on 029 2034 5511.