‘Forget me not’ terms and managing contract risk – An ounce of prevention is better than the cure
29th June 2020
- Businesses should be careful to not forget the key covenants of their contract to avoid liabilities for damages or reputational risk.
- Diarise key dates and use a contract management system if you have one.
'An ounce of prevention is better than the cure.' Such proverbs often ring true. It is too often the case that after some hot negotiation, everyone signs the contract, corks are popped, and the contract gathers dust at the bottom of the drawer (or should we say “virtual” drawer) as you enthusiastically press on with your project. Before closing that drawer, stop! Are there any ‘forget me not’ terms in the contract and what are the risks if you ignore or forget these?
Leaving aside the obvious risk of liability for damages for breach of contract, consider the impact on your business for less obvious risks such as reputational or brand risk or loss of goodwill.
Remember your obligations! What have you committed to in the contract?
Failing to meet a condition precedent
A condition precedent in a contract is exactly that, it’s a condition that must be satisfied before something else can take place. If a relatively minor condition, it may be possible to vary the agreement or depending on the terms of the agreement, rely on a waiver provision. But if the condition precedent is major, then this can be catastrophic if the condition is not met.
Missing sunset or key dates
Diarise any key dates in the agreement. If you have a contract management system, use it!
Avoid the temptation to do things as you have always done them in the past especially if a contract envisages a change in your usual contract management.
For example, if your usual payment terms are 60 days but you have agreed 30 day payment terms with a supplier, you could land yourself in hot water if you simply set and forget and pay on your ‘usual’ 60 days.
Key milestones or deliverables
If the contract requires you to positively carry something out, then remember to do so. It all comes back to good contract management.
Seems simple enough, don’t forget the term rollovers but like your home or car insurance, it’s all too easy to set and forget at the risk of losing the ability to terminate the contract or to re-negotiate terms.
Take note of any notice periods, if the written agreement was hard fought, don’t lose your bargaining power by failing to follow any notice procedures. What does the contract say? If you normally serve notices by email, pause before doing so and check the contract, to confirm that serving by email is not specifically excluded.
It may seem like common sense but when businesses are sometimes dealing with hundreds of different contracts ranging from a hire agreement for the office photocopier to a complex IT services contract, it pays to apply the same principles of good contract management to each.
Reliance on content the material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
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About the Author
Phillipa Hooper is a Senior Associate at Active Law, ACS Queensland’s Preferred Legal Partner. Phillipa has over 20 years of local and international experience across a diverse range of legal areas including business and commercial law, property and construction. Phillipa can assist with structuring, business acquisitions/sales, loan agreements, mortgages, IP/trademark issues, governance, and a range of commercial contracts.