Considering commercial contracts, with VWV
Ed Rimmell discusses the pitfalls and good practice that independent schools should consider in relation to commercial contracts
At VWV, we see a very broad spectrum of approaches among schools dealing with their contractual relationships with suppliers and third parties. Those approaches vary between schools, but also within individual schools where different contracts represent different risk profiles.
This article looks at some common pitfalls and suggestions of good practice, in relation to the types of commercial contract that we often work on with independent schools.
Supplier standard terms (non-negotiable)
For certain types of contract, there really is very little scope to agree any changes to the supplier’s standard terms of business. That is usually the case where the product or service being purchased is commoditised. Certain software licencing agreements and minibus leasing contracts are good examples of this sort of arrangement.
However, whilst there might not be scope to amend those standard terms, it is always important that schools understand them and ensure that they are comfortable with the risks. Very often, the less negotiable the terms, the more onerous they tend to be.
Although you may not be able to negotiate, if the terms really don’t work for you then taking your business elsewhere – to a supplier whose terms are more palatable – may be the answer.
Alternatively, having read and understood the risks, you might decide to enter into the contract on those terms – in that case, forewarned is forearmed in terms of your ability to manage your risk under those contracts whilst they are in place.
We come across situations all too often where the lack of scope for negotiation has resulted in schools simply signing up without really paying attention to the terms of the contract. Typically, this results in unexpected payments being due on termination of the contract, being locked into the contract for longer than was anticipated and poor contract management during the contract term.
Key message: be just as rigorous in reviewing and understanding non-negotiable standard terms as you would be with any other contract.
Supplier standard terms (negotiable)
Most suppliers to schools will have their preferred form of contract. However, where the services are relatively bespoke to the school – or where the supplier has an interest in setting a positive tone for the ongoing relationship – there is usually scope to negotiate those terms. Outsourced catering services and school uniform supply agreements, are good examples of this sort of arrangement.
The approach of suppliers with this sort of arrangement varies significantly. Some suppliers – particularly the better-resourced ones with a dedicated school offering – use documentation which is drafted so as to be a reasonable position which a school could accept with relatively limited changes. Others – often smaller providers, or those who don’t really distinguish between their school clients and other clients – rely on documentation which is a long way from what we would consider to be ‘best practice’ for schools.
You may well be told that ‘all of our other customers just sign up to our standard terms’. You should take that statement with a big pinch of salt. In our experience it is often those schools who then find themselves in difficulty with the service provider once the contract is underway. When dealing with this sort of arrangement, you should take advantage of the opportunity to negotiate, before committing your business to that supplier. Ensure that the terms are fair and that they include certain key protections for your school.
By way of example, depending on the nature of the services, you may well need to include robust safeguarding obligations on your provider. We have yet to find a provider – of any service – which includes safeguarding obligations in their standard terms which we think are sufficiently robust for schools.
Similarly, in arrangements where the holding and processing of personal data is taking place, (even if that is not a ‘core’ feature of the service), it will be important to ensure the contract adequately deals with data-protection issues. This is particularly the case post-GDPR (General Data Protection Regulations). GDPR is very prescriptive about the obligations that contracts must include in order that your contract is compliant.
Key message: take the opportunity to make sure that these important contracts work for you.
School template contracts
In some circumstances, where you are regularly entering into contracts of a similar type, it will be sensible for you to develop your own suite of standard documents. Aside from parent contracts (which have their own very specific considerations), facilities hire agreements and contracts with international pupil recruitment agents are good examples of this sort of arrangement.
You should, of course, ensure that these documents robustly protect the school’s position, and adequately deal – where appropriate – with safeguarding issues and relevant charity commission guidance, immigration, lease and licence issues, consumer legislation, etc. You should also ensure that the documents are structured in such a way as to be relatively easy for your staff to use on a day-to-day basis (without needing to get into the detail of the contract terms each time it is used).
However, in our experience it is also sensible to ensure that – whilst properly protecting the school’s position – the document is a reasonably balanced agreement. One benefit of this is that it minimises any negotiation on the terms of the contract. This approach will also help – where you present the contract as being ‘non-negotiable’ – to ensure that the contract is enforceable in the way that you expect it to be and that it doesn’t fall foul of ‘unfair contract terms’ and ‘consumer contract’ rules.
Key message: ensure that your standard documents robustly protect your own interests, but do so in a balanced way – and ensure that they are maintained and kept up to date.
On occasion, the commercial arrangements that you are putting in place will be relatively unique to both you and your counterparty. In these circumstances, neither party will have a ready document on which to base your arrangement. Shared facilities agreements and partnering agreements are good examples of this sort of arrangement.
Usually, these bespoke arrangements are, by their nature, of some strategic importance to the school. It is particularly important to ensure that careful consideration is given not just to the legal terms but also to the commercial structure of the arrangement.
There is no ‘one-size-fits-all’ approach to these sorts of bespoke arrangements. However, in our experience, the most efficient process for agreeing documentation of this nature is where the key commercial and legal considerations are identified and addressed at the outset. This enables the parties to ensure that potential sticking points are addressed at an early stage, rather than have them become issues late on in any negotiation.
Key message: these will always be the more challenging arrangements to put in place, so give yourself time to do so, making sure that sticking points are identified early.
With low-value or non-bespoke contracts, simply ensuring that you understand the contract to be able to manage your risks will be sufficient. For other contracts, where it is of strategic importance or where there are important commercial or regulatory aspects to address, a more involved approach will be appropriate.
In summary and in all cases, you should always carry out a careful analysis of the type of contract, its value and its risk. Armed with that information, you will be able to make an informed decision as to the appropriate approach to the contract. You will be better equipped – once it is up and running – to ensure that you enjoy a positive and well-managed relationship with your suppliers and other counterparties. A good contract will set expectations and properly allocate risk.
To be kept up to date with regulatory compliance, please ask for a demo of My OnStream. My OnStream is a cloud-based compliance management solution tailored to schools, providing a range of compliance services supported by VWV’s sector-leading lawyers. If you would like to find out more visit vwv.co.uk/mos/schools