The marriage of a commercial relationship

In this second of our three part series, we will be looking at the core ingredients of a successful commercial marriage and helping you prepare for what’s to come. From the honeymoon period right through to separation, a commercial relationship can be a tumultuous one.

In part one, 'The birth of a commercial relationship', we helped you to ensure that you entered into the agreement on the best possible commercial terms. The importance of this solid base cannot be underestimated, but the work doesn’t stop there!

Now that you have made that first commitment by negotiating and agreeing the terms of the contract and signing on the dotted line, what comes next?

The honeymoon period

Often, negotiating the contract and getting everything agreed can feel like the hard part. Unfortunately, the hardest part is yet to come. Once the euphoria of finding the right partner wears off, you need to work hard to ensure that you continue to hold up your end of the bargain and obligations as set out in the contract. 

To help build a strong and lasting relationship it is crucial that both parties have all the necessary procedures and practices in place to comply with the terms of the agreement, and that such performance is kept under regular review. You should always be thinking ahead and anticipating potential issues. Act on your obligations from commencement and create dialogue from the start; the better the relationship, the easier it is to deal with disputes.

Married life

Over the course of a commercial relationship you will undoubtedly be faced with challenges. However, by being pro-active and thinking ahead, you can anticipate and hopefully avoid a number of potential conflicts. 

As a starter, here are just a few things that you should be thinking about:

1. Obligations
Under any contract you will have both rights and obligations. It is your duty to ensure that you honour these. Often you will have provided warranties and/or indemnities and it is essential that you do your best to adhere to these at all times. Always keep your obligations at the forefront of your mind and speak to the other party promptly if for any reason you anticipate that you won’t be able to meet them so that an appropriate course of action can be agreed. By keeping the lines of communication open and meeting problems head on, you can prevent small bumps in the road from becoming divisive chasms.

2. Payment terms
What is the consideration under the contract? How much is to be paid and when? Repeated late payment or frequent disputes as to the amount charged are a common area of discord. If you are the paying party then ensure that you have sufficient procedures in place to make sure payment is made within the agreed terms and/or invoice queries are raised in a timely manner. Similarly if payments are due to you under the agreement, make sure that you monitor any payments being made by the other party.

3. Assignment or sub-contracting
Can you sub-contract or assign under the agreement? If so, what notice is required to the other party? As the relationship grows you may need to sub-contract some of your duties – make sure you keep the other party informed of your decisions and that you have appropriate controls in place to keep that sub-contract relationship from becoming the weak link in your relationship.

4. Supply and demand
Can you meet the demands of the contract? The needs of the other party may change, as may your capabilities. Stay in constant dialogue with the other party to avoid issues where possible and to manage them properly where avoidance is not an option.

5. Confidentiality
What are the confidentiality terms? Make sure that you identify confidential information appropriately and have sufficient procedures in place to keep it protected and that any employees etc. are aware of their on-going duties of confidentiality.

Ultimately, there is no magic formula for a successful business relationship; but diligence, communication, flexibility and pro-active behaviour are all key to making the relationship flourish. Abiding by these simple rules will create a much more positive relationship and importantly, a much more productive one.

In it for the long haul

No two contracts are the same; terms can be fixed, rolling or subject to review. Your contract may only be for six months or it may be indefinite. Either way, you want to part on the best terms possible. The key to most contracts is cost – divorce is expensive!

In our final article of the series we will discuss what to do when things start to go wrong or when, ultimately, you are ready to go your separate ways.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Craig Chaplin

Partner - National Head of Commercial & Competition

I am a Partner and Head of the Commercial & Competition Team.