2022 was a very strange year. Coming out of covid, many businesses are now faced with a new challenge - the pressures of inflation and price increases. In times like these, it is all too easy for businesses to focus solely on commercial issues, rather than legal. But there are always key points to consider, especially when entering contracts with suppliers.
Whose terms and conditions will apply?
This is always the number one consideration for any care provider entering into a legal contract – clarity. The majority of care homes do not operate on their own terms and conditions, and will usually accept and do business on a supplier’s terms.
This is not always a bad thing, as a supplier’s T&Cs will be tailored to the specific services they are supplying, i.e. hiring of goods and equipment used, supply of medicine or food, or the supply of services for the removal of waste.
It is important that as a care organisation you consider all the legal provisions in those T&Cs along with the potential impact these may have on your business.
What specifically shall I look out for?
Price increases: As mentioned above, price increase clauses are enemy number one. Usually, a supplier will have a provision in their T&Cs which allows them to increase prices year on year in line with inflation rates.
However, some T&Cs will also provide for general price increases in instances where the supplier’s costs have increased – these are particularly important to spot. It is also worth looking at what payment terms are included in the T&Cs and whether invoices are to be settled on a weekly or monthly basis.
How do I get out of a contract?
Of equal importance to price increases, always consider how to exit a contract with a supplier, if the worst were to happen. Most supplier contracts will be for a specified fixed term, but what if you are not happy with the services or products and you are only half-way through a contract?
The answer is it could be difficult to terminate the contract. Sometimes, suppliers will have provisions which allow them to charge customers a termination fee for early termination, which is usually the amount of the outstanding fees which would have been payable throughout the term of the contract.
Such costs can be devastating for any business, particularly as you would be stuck finding an alternative supplier and could end up paying two suppliers over a period of time for the same service. Termination provisions must always be reviewed, especially in line with the duration of the contract.
What happens to my contracts if I decide to sell my care business?
Depending on the structure of the sale (i.e. whether a share sale or an asset sale) it will depend on what happens with the particular supplier contract.
If an asset sale, the buyer will choose whether to assign the supplier contract and continue the trading relationship. However, if a share sale, then particular attention should be paid to whether there is a ‘change of control’ provision in the contract. These are commonly found in long-term contractual agreements such as hire purchase or lease agreements and such clauses may “trigger” termination of the contract in favour of the supplier and to the disadvantage of your buyer.
Although not a direct issue for your care organisation per se, it is good practice to be aware of these provisions, especially if this clause is present in a key / material supplier contract.
For further information please contact Daniel De Saulles Senior Associate, Commercial Team
01905 744 865
07384 796 268
ddesaulles@hcrlaw.com
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