Contracting on another party’s standard terms and conditions (B2B)

Introduction / Incorporation of Your Requirements / Limits of Liability and Exclusions /  Maximising Their Liability to Minimise Your Risk / Other Clauses to Look Out For / Incorporation of Standard Form Terms and Conditions /  Conclusion

Let us know if you are thinking of entering into a contract with another business.

Introduction:

 Contracting on another party's standard form terms and conditions is a common occurrence in business-to-business (B2B) transactions. In this article, we explore key issues to consider when dealing with such contracts. Whether you are buying goods or services, it is important to understand how to effectively incorporate your requirements, assess liability limits and exclusions, and maximise the other party's liability to minimise your risk.  

Incorporation of Your Requirements:

 When contracting on another party's standard terms, it is crucial to ensure that your specific terms and requirements are effectively incorporated. This can be done by including them in your order, request for a quote, or any other form of written communication before entering into the contract. Some examples of specific requirements to consider include:  

• Details of the product and/or service, such as a list or catalogue, reference to a sample, or a detailed specification.
• Specific variations to standards.
• Purpose of use or details of any special occasion for which the goods or services are required.
• Time-critical provisions and key dates, including last dates for delivery.
• Express conditions relating to the quality and nature of the goods or service, as well as your rights in them.

 By obtaining an acknowledgement from the other party, either through a signature or correspondence, you can ensure that your specific requirements are effectively incorporated into the contract.  

Limits of Liability and Exclusions:

 Carefully review liability limits and exclusions clauses in the contract. Challenge any clauses that exclude or limit liability for losses you are likely to suffer. It is important to ensure that the overall limit of liability reflects the value of the contract to you and the available insurance levels of each party. Consider the following: 

• Assess the value of the contract and the potential loss to you if the other party fails to perform.
• Inquire about the other party's insurance levels, especially if a very low level of liability is offered.
• Negotiate a higher limit of liability for specific aspects or loss situations.
• Challenge clauses that exclude financial or monetary loss, as this may not reflect your likely loss.
• Reject clauses that exclude liability for negligent or deliberate breach of contract.
• Provide detailed information about the consequences of a failure to perform properly, even if you cannot negotiate a change to the limit of liability.

Maximising Their Liability to Minimise Your Risk:

 To reduce your risk, consider including specific terms that maximise the other party's liability. Some examples of these terms include:  

• Express terms about the quality, condition, and delivery of goods or services.
• Provisions about the acceptance of delivery and the ability to reject goods later.
• Repair or replace warranties.
• Provisions relating to intellectual property and third-party rights.
• Indemnities in your favour for specific heads of loss resulting from a breach of contract by the other party.

 While the other party may resist giving an indemnity, they may agree to indemnify you against liability to third parties as a result of their breach of contract. This can be a significant area of loss that you cannot control.  

Other Clauses to Look Out For:

 In addition to the above, there are several other clauses that require careful consideration. These include: 

• Indemnities against you that may make you liable for losses or costs incurred by the other party.
• Payment terms that do not align with your needs or systems.
• Requirements to obtain insurance or credit guarantees.
• Provisions allowing the other party to change the price, delivery schedule, or products/services to be delivered.
• Clauses regarding the passing of risk and title of goods.
• Onerous requirements on you, such as short time limits for notification of claims.
• Consequences of termination, including the ability to receive part-made goods or partial services.
• Confidentiality clauses to protect sensitive information.
• Restrictions on your ability to assign or subcontract, and provisions allowing the other party to do so.
• Dispute resolution procedures, ensuring you retain the right to seek redress through the courts.
• Consideration of the applicable law and jurisdiction, especially when contracting under a different law or in a foreign jurisdiction.

Incorporation of Standard Form Terms and Conditions:

 To ensure you benefit from favourable terms and to dispute unfavourable terms, it is important to confirm the incorporation of the other party's terms. Check for pre-contract documents that explicitly mention or reference the other party's standard terms, such as catalogues, purchase order forms, or quotation acceptances. If the supplier only mentions their standard terms on delivery notes or invoices, they may not be incorporated, and statutory laws may apply instead. Additionally, a long-standing course of trade with the other party may override certain terms.  

Conclusion:

Contracting on another party's standard terms and conditions requires careful consideration and negotiation.  By effectively incorporating your requirements, assessing liability limits and exclusions, and maximising the other party's liability, you can minimise your risk and protect your interests.  It is essential to review all clauses and seek legal advice if necessary to ensure a fair and balanced contract.

See also: Incorporating Standard Terms and Conditions

Legal Notice: 

Publisher: Atkins-Shield Ltd: Company No. 11638521
Registered Office: 71-75, Shelton Street, Covent Garden, London, WC2H 9JQ

Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only. E&OE Atkins-Shield Ltd © 2024