Negotiating and signing a commercial contract isn’t the end of the process. As your business changes, your commercial relationships develop and the legal and regulatory landscape evolves, the terms of your contracts may no longer reflect your current position.
Our experienced team of commercial contract solicitors can help you review your existing agreements and identify where updates may be needed to protect your business and support your commercial objectives.
Contents:
- When should you update a commercial contract?
- Should you update a commercial contract when the scope of services changes?
- Do you need to update a contract when prices or payment terms change?
- Should you review a commercial contract when your business relationship changes?
- Do contracts need updating when new products, services or territories are added?
- When should a commercial contract be updated following a change in law or regulation?
- Should you review a commercial contract if there have been performance problems or disputes?
- When should you update liability, indemnity or insurance provisions in a commercial contract?
- How often should you review your commercial contracts?
- When is it better to replace a commercial contract rather than amend it?
- What are the risks of not updating your commercial contracts?
- How can Harper James help?
When should you update a commercial contract?
You should consider reviewing a commercial contract whenever there is a significant change to the commercial relationship, the products or services being supplied, pricing, payment arrangements, the legal or regulatory environment, the parties’ ownership or structure, or the way the contract is actually being performed.
Changes in the wider market can also justify a review. Inflation may make fixed pricing commercially unsustainable, supply chain problems may affect delivery commitments and technological developments may fundamentally change how a service is provided. If a key supplier or business partner experiences financial difficulties, you may also want to reconsider protections around payment, continuity of supply, termination or insolvency.
You should not necessarily wait for one of these events before looking at your contracts. For strategically important, high value or long term agreements, periodic reviews can identify outdated terms and potential risks before they cause problems.
A review does not automatically mean the agreement needs to change. In some cases, the existing drafting will already accommodate the development. The key question is whether the written contract still accurately reflects the relationship and adequately protects your business.
Should you update a commercial contract when the scope of services changes?
A change to the scope of goods or services is one of the clearest reasons to review a contract.
A supplier might originally have been engaged to provide a relatively limited service but gradually take responsibility for additional functions. A customer may increase its requirements, add new locations or ask for deliverables that were not contemplated when the agreement was signed.
If those changes become significant, relying on an outdated statement of work or service description can create uncertainty about what each party is required to do. The contract may need to address revised deliverables, deadlines, service levels, acceptance procedures, customer dependencies, resourcing commitments or change control arrangements.
The financial and liability provisions should also be reviewed. A supplier taking on substantially more responsibility may be exposed to risks that were not factored into the original pricing or liability cap.
It is also worth considering connected agreements. For example, if you agree a shorter delivery timetable with customers, can your logistics or supply chain arrangements actually support it at an acceptable cost?
For smaller changes, an existing change control mechanism may be sufficient. For a more fundamental shift in scope, a formal contract variation or replacement agreement may be more appropriate.
Do you need to update a contract when prices or payment terms change?
Changing prices does not always require the whole contract to be rewritten, particularly where the agreement already contains a price review or indexation mechanism.
You should review the contract if the commercial model has changed significantly. For example, the parties might move from fixed pricing to usage based charges, introduce minimum purchase commitments, agree different payment periods or add volume based discounts.
Inflation and changing trading conditions can also expose weaknesses in long term pricing arrangements. A fixed price that appeared commercially sensible when an agreement was signed may become difficult to sustain if input, labour, energy or transport costs rise significantly.
It is also worth checking whether the pricing change affects other provisions, such as service credits, rebates, termination payments or liability caps that are calculated by reference to charges paid under the contract.
Simply changing one number without reviewing connected provisions can create unintended consequences.
Should you review a commercial contract when your business relationship changes?
Some commercial relationships grow far beyond what the parties originally anticipated.
A relatively small supplier arrangement might develop into a strategically important partnership, a customer may become responsible for a significant proportion of a supplier’s revenue, or the parties might begin collaborating on product development, sharing commercially sensitive information or relying more heavily on each other’s systems and personnel.
Your commercial priorities may also have changed since the agreement was signed. Forecasts may have proved inaccurate, your business model may have evolved or competitive pressures may require a different approach.
When the nature of the relationship changes, the original allocation of risk may no longer be appropriate. Provisions dealing with exclusivity, minimum purchasing commitments, forecasting, business continuity, confidentiality, subcontracting, audit rights, exit assistance and termination may all need to be revisited.
This is particularly important where the parties’ conduct has moved significantly beyond what is described in the contract. Allowing a substantial commercial relationship to continue on outdated terms can make disputes more difficult to resolve if expectations later diverge.
Do contracts need updating when new products, services or territories are added?
Businesses often expand an existing arrangement rather than entering into a completely separate contract.
A distributor might begin selling additional products, a technology provider may launch a new service, or the parties may agree to expand into new geographical markets. Before treating the existing contract as covering the new activity, check whether its wording is broad enough to do so.
Expansion may affect product or service definitions, pricing, sales targets, exclusivity, regulatory responsibilities, warranties, intellectual property licences, data protection arrangements, tax and dispute resolution provisions.
International expansion deserves particular attention. An agreement drafted for activities in the UK may not adequately address the regulatory, tax or operational issues that arise when services or products are provided elsewhere.
Competitive developments can also be relevant. If the way you market, distribute or deliver a product needs to change to keep pace with competitors, check that your existing agreements allow you to make those changes without breaching exclusivity, territory or channel restrictions.
The parties may be able to document the expansion through an additional schedule or statement of work, but more extensive amendments could be needed.
When should a commercial contract be updated following a change in law or regulation?
Commercial agreements do not exist in isolation from the legal and regulatory environment.
Changes in legislation, regulation or regulatory guidance can affect the obligations imposed on one or both parties. This is especially relevant to businesses operating in heavily regulated sectors or under long term agreements.
A change in law does not necessarily mean that the wording of every affected contract becomes invalid or that the contract automatically updates itself. The impact will depend on the agreement and the particular legal change.
It is sensible to review affected contracts where new rules alter how the parties must perform their obligations. The contract may need to clarify which party is responsible for compliance, who bears additional costs, whether prices can be adjusted and what happens if the new requirements make performance materially more difficult.
Well drafted long term agreements may already include a change in law mechanism. They may also include review or break clauses that provide a contractual opportunity to revisit terms at specified intervals or when particular events occur.
Even where such provisions exist, it is worth checking whether they deal adequately with the particular regulatory development.
Should you review a commercial contract if there have been performance problems or disputes?
Repeated problems with contractual performance can be a reason to review whether a contract is working effectively.
The issue may be commercial rather than legal. For example, service levels may be unrealistic, responsibilities may overlap, deadlines may no longer reflect operational reality or the escalation process may be too cumbersome.
If experience shows that a particular provision consistently causes operational problems or produces a commercially poor outcome, that can itself be a reason to renegotiate it.
Can a contract update help resolve recurring performance issues?
Where the parties want the relationship to continue, renegotiating problematic provisions can sometimes be more commercially effective than repeatedly arguing over the existing wording.
An update may clarify performance standards, reporting requirements, remedies, payment arrangements or termination triggers. It may also give the parties an opportunity to introduce a more effective escalation or dispute resolution process.
What happens to existing breaches and accrued rights?
Care is needed where changes are being made against the background of an existing breach or dispute.
The parties should be clear about whether the amendment affects accrued rights, settles existing claims or waives previous breaches. These matters should be addressed expressly to avoid uncertainty later.
When should you update liability, indemnity or insurance provisions in a commercial contract?
Liability clauses negotiated at the beginning of a relationship may no longer reflect the level of risk as the relationship develops.
For example, a contract originally worth £50,000 a year might grow into a £1 million arrangement while retaining the same liability structure. Alternatively, a supplier might begin handling commercially sensitive information that materially increases the customer’s potential exposure.
Changes to insurance arrangements can also be an important reason to review a contract. If a business changes the scope or limits of its insurance cover, it should consider whether its contractual liabilities and indemnities remain consistent with that cover.
When should liability caps be reviewed?
Where the value, operational importance or risk profile of the arrangement changes significantly, the liability framework should be reviewed too.
That does not necessarily mean the cap should increase. The appropriate position will depend on the type of loss that could arise, the contract value, available insurance and the bargaining position of the parties.
The important point is that the cap should still make commercial sense in the context of the current relationship.
Should exclusions of loss and indemnities also be reconsidered?
Updating a liability cap without looking at the rest of the risk allocation can leave important gaps.
Indemnities, exclusions of loss and insurance obligations may also need to be reconsidered if the nature of the services or the risks involved have changed.
Our guide to indirect and consequential loss in commercial contracts explains why the wording of exclusions can materially affect what a party can recover following a breach.
How often should you review your commercial contracts?
There is no universal timetable for contract reviews. The right frequency will depend on the contract’s value, duration, complexity and importance to your operations.
A low value, short term agreement may not justify a formal annual review, whereas a long term agreement underpinning a key supply chain, technology platform or major customer relationship should usually receive much closer attention.
Which contracts should be reviewed most frequently?
Contracts that are high value or difficult to replace will usually justify more frequent review. The same applies to agreements where pricing, technology, service scope or regulation is likely to change quickly.
Where a business has a large contract portfolio, it may not be realistic or commercially sensible to renegotiate everything at once. A tiered approach can be more effective: prioritise the agreements with the greatest financial or operational importance, or those where there is a realistic opportunity to improve the terms.
What should a contract review process include?
A sensible contract management process should make sure key renewal, review and notice dates are recorded, responsibility for important agreements is clear, amendments are stored centrally and high value contracts are reviewed when significant business or regulatory changes occur.
It can also be useful to allocate responsibility for individual contracts to specific people within the business. Those responsible for day to day management are often best placed to identify when a contractual term no longer works operationally or when the parties’ actual practices have diverged from the written agreement.
For businesses managing a growing portfolio of agreements, our guide to contract management strategies looks at ways to build a more structured approach to contractual risk, governance and oversight.
When is it better to replace a commercial contract rather than amend it?
Not every outdated agreement should be fixed through a series of amendments.
A relatively simple change, such as adjusting a price, changing a service level or extending the term, may be dealt with through a short written variation.
This can be a proportionate option where the rest of the agreement remains suitable and the changes are limited.
Before proceeding, check the agreement’s variation provisions and whether the proposed change requires agreement from both parties. You should also consider whether a review or break clause provides an existing mechanism for renegotiating the terms.
Entering into a completely new contract may be cleaner where the commercial relationship has changed fundamentally, the original agreement is significantly outdated or important parts of the arrangement are being renegotiated.
If a new legal entity is taking the place of an existing party, the appropriate mechanism could instead be a novation.
The right approach will depend on the extent of the changes and the commercial objectives of the parties. Our guide to varying a commercial contract considers in more detail when variation, novation or replacement may be appropriate.
It is important to preserve any rights, liabilities or claims that are intended to survive the change and to make clear which document governs the relationship going forward.
What are the risks of not updating your commercial contracts?
An outdated contract does not necessarily stop being enforceable simply because the commercial relationship has moved on. That is part of the problem.
If a dispute arises, the written agreement may give one party rights that neither side has considered for several years.
What problems can outdated contract terms cause?
Outdated contracts can create uncertainty over what products or services must be provided, what the customer must pay, whether informal changes are binding, which service levels apply, who owns intellectual property and whether either party has a right to terminate.
They can also leave a business exposed to risks that have emerged since the agreement was signed. For example, the financial position of a key supplier may have deteriorated, insurance arrangements may have changed or new market conditions may have altered the commercial viability of the deal. Regular reviews provide an opportunity to identify and address those risks before they turn into disputes or operational problems.
Contract reviews are therefore not simply a legal housekeeping exercise. They can help businesses protect revenue, manage supplier and customer relationships, identify opportunities to renegotiate and ensure that their contractual arrangements continue to support their wider commercial strategy.
How can Harper James help?
As your business and commercial relationships change, your existing contracts may no longer reflect your current arrangements. Whether you’re expanding an existing relationship, renegotiating pricing, responding to changes in the market or dealing with an agreement that no longer reflects how the parties operate, reviewing your contracts can help reduce risk and avoid uncertainty later.
Our commercial contract solicitors advise businesses on reviewing, negotiating, varying and replacing commercial agreements. We can help you identify provisions that need updating, assess the implications of proposed changes and document revised arrangements clearly.
If you need help reviewing or updating your commercial contracts, get in touch with our commercial law team.
