I find that I’m having to sign lots of contracts in my start-up phase with suppliers and other partners. I know I should be scanning the fine print, but is there something in particular I should be looking out for? What are the common things put into the small print that can catch you out?
One of the things about “the fine print” is that it is often fixed in stone.
But this doesn’t mean you shouldn’t at least ask for a change to it – because the Australian Consumer Law (ACL) (which replaced the Trade Practices Act) construes “standard form contracts” against the party who drafted them – particularly where that party refuses to negotiate changes to them – and they can be declared void.
There are also specific provisions protecting “small business” in the ACL.
So which clauses fall into this category? Unfortunately, this is the old “piece of string” question because commercial lawyers, given half a chance, will draft just about any clause so that it is unfair to the person who isn’t paying their bill.
But as mentioned here previously, be careful of giving director’s guarantees, as this overcomes your “limited liability” benefit from using a corporate structure. You can overcome this often by either not completing the area requiring your personal details and/or not signing the guarantee section.
If you are relying on specific products, make sure that the supplier does not have the option to be able to substitute other products, and likewise that they can’t change to pricing at their discretion once you are locked into the term. There should be a specified methodology, with external triggers or escalators. You should also make sure they can’t transfer their supply obligations to a third party.
You should also check there are no hidden nasties that require minimum (or maximum) purchase obligations, with differential pricing if you don’t comply.
Where it is an IT or IP product or service (such as a website, or artwork or something else subject to copyright laws, etc) – you must make sure you get an assignment of the underlying ownership in the product – to make sure you are not tied to that supplier in the future, whether for maintenance or if you simply find they become too expensive, or you have a falling out with them.
One more (although I’m sure there are many, many more) clause to be very careful of is any exclusion of, or limitation on their liability. They will try to exclude absolutely all liability – but you should try to reduce this to something “reasonable”, ie. if their product fails, they should be liable for at the very least replacing it, and preferably also paying any direct costs and losses you have incurred as a result of the failure.