This is the second of a series of fortnightly issues in which we will give practical tips on how to avoid contractual issues arising out of digital transformation and outsourcing contracts. If you'd like to read the first issue in the series, click here.
Our first issue titled 'Know your Contract' provided a series of tips to assist the parties to understand and be familiar with the contract. This issue provides a series of tips to ensure that the parties follow the terms of the contract and that any changes to it are carefully considered and documented, emphasising again the need to be familiar with the contract and the key obligations under it.
Tip 1: Set the rules on transparency
- Under the contract, you will likely be entitled to receive certain information that will allow you to manage performance and the level of compliance with the contractual obligations.
- Be clear from the outset about what information and documentation you will want to see, how often you expect to see it, how it should be presented and why it is necessary.
- By setting the 'rules' from the beginning (and making sure they are followed!) both parties are more likely to treat the provision of information and documentation as 'business as usual', so that the agreed information and documentation is provided as a matter of course.
Tip 2: Manage communications
- If the contract does not designate a specific person(s) to make and receive formal communications on behalf of the other party to the contract send a notice at the beginning of the contract requiring the designation of such a person(s).
- Likewise, designate a person(s) to make and receive formal communications on behalf of your organisation and make sure that the other party to the contract knows who this person(s) is.
- Ensure that formal communications, particularly those relating to contract changes or performance issues, take place via the authorised representatives. This will avoid misunderstandings and the implementation of unauthorised actions.
Tip 3: Contract Change - what are the consequences?
- Long-term contracts are complex, and often have interlocking provisions. Before changing the contract, consider the effects that such change would have in the contract as a whole and ensure that the implementation of the change will not lead to unintended consequences. For example, check that changes to defined terms (especially in relation to time periods) don't leave you with a long term change when you had expected it to be time-limited.
- Run the proposed contract changes past the lawyers (ideally those who drafted the contract), and take time for both you and the lawyer to understand the intended practical effects.
- If the contract needs to be changed, make sure that, once you have considered the overall impact, all relevant provisions of the contract are amended and that the changes are made in accordance with the formalities required by the contract and by those with the requisite authority.
Tip 4: Contract Change - be clear and consistent as to what this means (and doesn't mean)
- Understand and consistently enforce the difference between project change and contractual change.
- There can be financial implications of a formal contract change - ensure you are content the matter in question is a genuine change (rather than something the contract already requires a party to do) and, if it is a genuine change, that there is a clear agreement on what the financial and other implications of that change will be.
- The contract may allow for variations in the performance of the services. Such variations don't require the amendment of the contract, but make sure the correct procedures are followed.
Tip 5: Contractual approval - be clear and consistent as to what this means (and does not mean)
- When the contract requires an approval being given, always insist on the contractual approval being sought and given in the prescribed manner.
- Deal with necessary approvals in a timely manner, and don't start the work until the process of obtaining approval has been finalised.
- If the parties cannot agree on something which needs a contractual approval, use the dispute resolution procedure provided in the contract or seek another form of resolution. Not resolving an issue will likely cause bigger problems later on, affect other interdependent obligations and increase costs.