In the current economic climate, hospitality businesses are frequently being let down by suppliers, such as providers of equipment, staff or products, and so it is important to be aware of how to set up effective contractual relations to protect your business and what to do should things go wrong. Daniel Jacob, corporate partner at Pitmans LLP, looks at how to effectively negotiate and manage contracts with suppliers to your hospitality business.
- Entering into supplier contracts:
Robust contracts should be put in place to govern relationships with suppliers. These agreements should be set out in writing to ensure that terms have clearly been agreed, enabling any problems to be resolved more easily at a later date.
Companies in the hospitality sector, like most companies, rely on the performance of supplier contracts to enable them to fulfil contracts with others. Accordingly, terms of supplier contracts should tie into the timescales and obligations which the business has agreed to fulfil with others.
Expressly making time of the essence for the supplier’s delivery obligations is essential so that you can then rely on any failure to perform to justify termination. Equally an accurate description of the goods or level of services (if the contract is for services) that will be provided under the contract is essential.
Ultimately, legal advice should be taken on the negotiation of terms and structure of supplier agreements so as to best protect your position.
- Managing the relationship:
From a commercial perspective, companies should anticipate when problems are developing. If a supplier’s performance is deteriorating, monitor this and act early. Open dialogue with the supplier so that you can understand the reasons for their problems, pre-empt any failures and endeavour to achieve a workable solution for all parties. It may be worthwhile considering re-negotiating the contract and putting alternative arrangements in place at an early stage.
Should the supplier remain unable to fulfil its obligations then, from a legal perspective, there are various remedies which will be open to your business which can also be used tactically, to position your company to resolve the dispute. However, within a reasonable time you will need to decide whether you are entitled to and wish to exercise any rights of early termination.
A commercial consideration before opting to terminate a supplier contract is whether there are other third parties available who can service your supply requirements. Whether there is someone else in the market who can deliver what you need, in the time frame whilst getting up to speed with your business and its needs will affect the approach you should take to the party acting in breach.
If you do decide to end the relationship, check that the terms of the contract permit you to terminate in the circumstances that exist and ensure that you follow the correct procedure for serving any termination notices.
Additionally, ensure that you don’t do anything that could be viewed by the supplier (and the court) as waiving the breach of contract, so affirming it. Failure to take action could also have the same effect. At all times, notwithstanding that your company may not have been at fault, ensure you take all reasonable steps to seek to minimise your losses to best position yourself in recovering those at a later date.