2022 is proving to be a very strange year. Coming out of COVID-19, many businesses are facing a new challenge – the pressures of inflation and price increases. In times like this, it is all too easy for veterinary practices to focus solely on commercial issues rather than legal ones. But there are always key points to consider, especially when entering contracts with suppliers. This article will provide a brief overview of the essential provisions you should consider when making commercial contracts.
What terms and conditions apply?
Clarity of terms and conditions is always the number one consideration for any veterinary practice entering a legal or commercial contract. Most practices 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 terms and conditions will be tailored to the specific services they are supplying. These may include the hiring of any goods or equipment used by the practice, the supply of medicine or food and the supply of services for the removal of waste. However, what is important is that, as a practice, you consider all the legal provisions in those terms and conditions along with the potential impact these may have on your business.
Clarity of terms and conditions is always the number one consideration for any veterinary practice entering a legal or commercial contract
What should I look out for?
As mentioned above, price increase clauses are enemy number one in commercial contracts. Usually, a supplier will have a provision in their terms and conditions that allows them to increase prices each year in line with inflation rates. However, some terms and conditions will also provide for general price increases in instances where the supplier’s costs have increased – these are particularly important for the practice to spot. It is also worth looking at what payment terms are included in the terms and conditions, and whether invoices are to be settled on a weekly or monthly basis.
How do I get out of a contract?
You should always consider how to exit a contract with a supplier if the worst were to happen – this is of equal importance to price increases. Most supplier contracts will be for a specified fixed term, but what if you are unhappy with the services or products and are only halfway through a commercial contract? The answer is that it could be difficult to terminate the agreement.
You should always consider how to exit a contract with a supplier if the worst were to happen
Sometimes suppliers will have provisions which allow them to charge customers a fee for early termination. A termination fee is usually the amount of the outstanding fees that would have been payable throughout the term of the contract. Such costs can be devastating for any veterinary practice, particularly as you would be stuck finding an alternative supplier and could end up paying both suppliers for the same service for a while. Termination provisions must always be reviewed, especially in line with the duration of the commercial contract.
What happens to my contracts if I decide to sell my practice?
If you decide on a share sale, then particular attention should be paid to whether there is a “change of control” provision in the contract
If you decide to sell your practice, what happens to a particular supplier contract will depend on the structure of your sale. If an asset sale, the buyer will choose whether to assign the supplier contract and continue the trading relationship. However, if you decide on a share sale, then particular attention should be paid to whether there is a “change of control” provision in the contract. These provisions are commonly found in long-term contractual agreements such as hire purchase or lease agreements. It is possible that the clause may “trigger” termination of the commercial contract in favour of the supplier and to the disadvantage of your buyer. Although not a direct issue for your practice per se, it is good practice to be aware of these provisions, especially if this clause is present in a key/material supplier contract.