Reviewing commercial contracts to minimise financial difficulties

The following Commercial practice 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

Reviewing commercial contracts to minimise financial difficulties

This Practice Note considers the steps which a business can take to review its commercial contracts with a view to extracting maximum value from them and minimising costs under them. The Practice Note explains the circumstances which might prompt a contract review, what should be reviewed and who should be involved in the review process. It also explains the key elements of the contracts reviewed from both a customer’s and a supplier’s perspective.

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

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