Reviewing commercial contracts to minimise financial difficulties
Reviewing commercial contracts to minimise financial difficulties

The following Commercial guidance note provides comprehensive and up to date legal information covering:

  • Reviewing commercial contracts to minimise financial difficulties
  • Purpose of review
  • What should be reviewed?
  • Who should review?
  • Considerations for a supplier
  • Considerations for a customer

Purpose of review

A review of existing commercial contracts at whatever point in the economic cycle is beneficial for the purpose of both extracting the maximum value from them; minimising exposure to unnecessary costs; and avoiding being tied into a contractual relationship with a company which is itself suffering financially.

Dependent upon whether the interests of the customer or the supplier are of concern, strategies for reducing exposure to the risk of financial difficulties include:

  1. terminating the contract or otherwise negotiating an exit from it

  2. achieving savings through contractual provisions such as benchmarking or ‘most favoured customer’ clauses

  3. achieving value through contractual provisions such as for continuous improvement, exclusivity, price review and minimum purchase obligations

  4. achieving security through payment terms and retention of title, guarantee or other security provisions, and

  5. re-negotiating individual contract terms such as price, term and notice period

A business may also find itself in the position of reviewing existing contracts because it wishes to centralise its spending, consolidate its business units or otherwise change the set-up of its contractual relationships if they no longer reflect the business direction and commercial requirements which it has any longer. It may also be reviewing a commercial contract prior to its execution with a view to setting it up in such a way as to minimise exposure to any financial risk