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Legal Q&A: How to ensure contractual obligations are met

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A: In times of economic uncertainty, there is understandable pressure to do deals with customers no matter what. While this might appear attractive in the short term, be aware that there are risks, not least to your reputation, as well as potential cost consequences.

How do you ensure that everyone is clear about their obligations, avoid disputes and get paid? The short answer is: be prepared and communicate, communicate, communicate.

In particular:

Due diligence: Check out potential customer’s business credentials, their trading history and financial position to ensure they are good for the money. A flashy website does not a viable business partner make.

Overselling: Don’t be tempted to oversell your expertise; this is not the time to “wing-it” and hope that you will be able to provide the services required. Ensure you can deliver what’s required in the time-scale required.

Communicate: Iron out uncertainties before you sign and satisfy yourself that the customer has management “buy-in” for the project. Who will you be dealing with on a day-to-day basis and do they understand the deal? What do you need from them in order to fulfil your obligations? Help them to help you.

Money: Is cash flow (yours or theirs) an issue? Do you need an up-front payment to proceed?

Put it in writing: It’s vital to have a tightly-drafted agreement in place. This should set out all of the key terms, including as to any variations to the agreement. Scope creep on projects is notorious for creating disputes. Do not assume that a dispute won’t happen: agree how you will act if there is a problem. We suggest that you consider an internal escalation process before formal proceedings bite. Ensure you engage with a disgruntled customer as early as possible and nip potential issues in the bud.

Perform: Don’t file the signed agreement away; ensure all members of the team are aware of its terms and stick to them. Review performance of the agreement on an on-going basis.

While taking these steps can never legislate for the truly unreasonable customer, it will at least make it easier for you to take action and enforce your rights. 

Janet Tobin is special counsel at international law firm Taylor Wessing.

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