What can you do better in the contract?

Local Government Contracts Series '€“ Article #2

Assisting local government with various agreement-related tasks such as drafting, review and advice on interpretation throws up some recurring themes. Councils are large and busy organisations and are required to engage in a number of activities, often engaging the of other organisations. Being mindful about a few factors in Council contracts can help avoid inconveniences at best and disputes, costs and loss of at worst.

Agreements to agree

Sometimes, contracting parties "fudge" dealing with a difficult issue and leave it to be decided at a later stage by including an "agreement to agree" in a contract. This (non) solution is perhaps more frequently used in contracts with a local government counterparty than outside that domain. However, such "agreements to agree" may well be unenforceable because of the uncertainty involved. While superficially attractive, the "agreement to agree" approach can lead to serious problems. To ensure that Council can receive from the contract what it has bargained for, if the matter is a key aspect of the contract (eg a price review or an option for a further term), it is essential to come up with an objective method of resolving such issues. There are various possible tools available, but it is necessary to engage in the detail of the topic and come up with a solution with which both parties are comfortable. However, if the details left to be agreed upon later are relatively minor and do not relate to the main elements of the contract (subject matter, price, etc.) and/or Council has (and is confident it can maintain) a cooperative relationship with the counterparty, it may draw some comfort from these factors as, understandably, not every detail can be contemplated and fixed at the time a contract is signed.

The end game '€“ holding over, transition and "getting your stuff back"

Often, it's easy to focus on the life of a contract and less on who has what and who does what when it expires. Holding over after a contract term ends is fine, but does it oblige your "old" contractor to deliver up to you valuable Council assets if holds? Possibly not. "Transition out" obligations sound great but what if they only apply once a new service provider has been formally appointed (noting that this can drag on for a bit)? What if the Council assets involved are Council records and archives, obviously highly sensitive and subject to privacy obligations? We've seen an instance where the "delivery up" service that a Council would need in this circumstance was not covered under the "old" contract '€“ so the "old" (and outgoing) contractor could nominate its own price '€“ not a happy situation! Fortunately, there was another obligation of the "old" contractor that could be put to (unintended) work '€“ the "return confidential information" provision. So, do some "scenario planning" to identify what might go wrong. Sometimes, overly specific drafting can trip you up and hand your counterparty considerable unplanned leverage. As contracts become more complex and more IT-intensive, so too does changing-over to a new provider. To allow Councils to have a competitive procurement for the next service provider requires carefully thought through "transition out" provisions, else the old contractor could leverage its incumbency to effectively become permanent. For robust commercial advice tailored to local government needs, please reach out to us to any of the three authors below. Local government contracts series article 1: what can you do better before signing the contract?