“Contracts? Who needs them!” The thought of them may make you roll your eyes, but they are important risk management tools. If you knew with 100% certainty that your agreement would go perfectly, having a contract would be pointless. Unfortunately, you cannot always be so certain. Contracts can help protect your institution and are potentially a lifesaver if things don’t go as planned.
How can contracts benefit my institution?
Contracts often look like a sea of endless words, but those boring-looking clauses suddenly matter greatly if the situations they address happen to arise. However, what matters most is what your institution must do under the contract and what it expects to receive.
For example, when procuring, are the goods or services your suppliers are expected to deliver sufficiently specified, and is the institution’s payment obligation certain? Are the supplier’s requirements clear?
On the parent and student side, are your arrangements with parents and students properly documented so that they understand their obligations and how the rules and policies apply to them?
Are the institution’s obligations clearly set out too?
How can I manage contractual risk?
1. Know what you’re signing
Surprisingly often, agreements are not properly read, reviewed, or understood before they are signed. Have someone with legal experience review the larger or more important contracts before signing.
2. Include detailed specifications
A contract should state each party’s responsibilities and specify deliverables. Your procurement arrangements contracts should specify those deliverables clearly and precisely, including quality details and standards, as well as deadlines.
Detailed specifications and clear responsibilities help prevent misunderstandings, making problems easier to resolve.
3. Specify clear payment terms
A contract should clearly set out payment terms, specifying what is being paid, when, and by what method. When entering long-term contracts, ensure that prices are fixed or be prepared for how they may change.
4. Decide liability
Deciding who bears what liability is a major part of managing risk. The contract should clearly state the extent of each party’s liability if they fail to do what they promised. Are their liabilities limited e.g. to some maximum? Are liabilities for indirect or economic loss excluded or limited?
Who pays if a project overruns?
Is appropriate insurance in place and aligned to the contractual and other risks?
5. Manage change and termination
Circumstances change, funding shifts, needs evolve, and suppliers may not deliver as promised. That’s why termination clauses are essential.
Make sure you are not committing to an agreement for longer than you expected and that you can terminate if things go wrong. Also, check for hidden automatic renewals and ensure you have the right to end a contract if the other party is seeking to impose an unacceptable price increase or other change.
In longer-term contracts, think about building in mechanisms to change obligations on both sides to match changes in your requirements.
6. Keep contracts alive
Once signed, don’t just forget your contracts.
Schools should actively manage them, especially the higher value and more important ones, such as those dealing with any outsourced functions. Ensure they are quickly accessible and assign someone to oversee the other party’s compliance, keeping suppliers’ performance under regular review. The most carefully drafted contract is useless if no one bothers to manage it.
We all know risk is everywhere and cannot be eliminated, so refer to your risk register, manage it through well-informed decisions, and negotiate the best contractual terms possible.
Make certain that appropriate insurance and other risk management measures are in place. By asking the right questions and obtaining the right advice, schools can help maintain and improve the quality of delivery while significantly reducing exposure, protecting their resources, their people, and their reputations.
Well-managed contracts allow educational institutions to focus on what really matters: the importance of learning.
Get in Touch
If you require any advice or support in relation to creating contracts to benefit your school, college or university, our experienced education experts are here to help. Contact the team using the form below, or learn more about the services they offer by clicking here.
Peter Manford
Corporate & Commercial Partner
Peter has many years’ experience advising companies and educational institutions on the contracts and legal arrangements they need in place to position them well to carry on with trading and business activity on the best obtainable terms and with their risks appropriately managed.
