Securing Performance In Commercial Contracts - How To Ensure Contractual Performance

In contracting terms, we cannot always choose our

perfect partners. Sometimes we go with the best that is on offer

and sometimes we weigh the risks against the benefits and decide to

take a chance. If we have doubts as to whether the party we are

contracting with will meet our expectations, or live up to its

contractual promises, how can we structure the contract to try to

secure the performance that we want? Financial obligations aside,

what sort of provisions might be found in a typical commercial

contract which are relevant to securing the performance of a

party's obligations? And are those provisions always helpful to

the party looking to secure performance?

Express Terms

The obvious starting point is to make sure that the contract

clearly sets out what each party is expected to do. After setting

out the performance obligations, then think about the performance

standards that might also be required, for example:

to provide the services in a first-class professional manner;

or

to provide the services in accordance with all applicable laws

and regulations and in accordance with best industry practice.

Customer Obligations

It is important to bear in mind that the performance obligations

are not going to be all one way. Whilst the customer will naturally

expect to be under a payment obligation, there can be other

obligations which will directly impact upon the customer.

The first is a provision which runs along the lines that:

'The customer will provide such assistance and facilities as

the supplier may reasonably require in the performance of its

Services, including such materials and data as may be available to

the customer, and access to the customer's personnel and

premises'. Whilst this might seem reasonable, a provision in

this form imposes a very general and open-ended obligation on the

customer, which the customer should consider carefully.

The contract may also contain a provision to the effect that if

the customer fails to perform any of its obligations or is late in

the performance of any of its obligations and that failure impacts

on the supplier's performance, then the supplier is not in

breach of its obligations to the extent that the failure or delay

in its own performance was caused by the customer. Again, that

provision may seem fair enough, but when combined with the

open-ended obligation on the customer to provide assistance etc to

the supplier, the two together can provide plenty of opportunity to

excuse the seller from a failure to perform.

Implied Terms

Other than those terms implied into contracts by legislation,

for any term to be implied into a contract it must be:

reasonable and equitable;

necessary to achieve business efficacy;

obvious – ie it 'goes without saying';

capable of close expression; and

it must not contradict an express term. A recent Privy Council

case, A-G of Belize v Belize Telecom (2009), boiled it

down to a simple statement: the test as to whether a term needs to

be implied into a contract to reflect the parties' intentions

is whether that term would spell out in express words what the

contract, read against the relevant background, would reasonably be

understood to mean.

A further implied term to be aware of was highlighted in

Anglo Group v Winther Browne (2000). In that case, the

Court said that: "It is well understood that the design and

installation of a computer system requires the active co-operation

of both parties". This is regarded very favourably by

suppliers, and it can be very contentious as to what this involves

for a customer. Later cases have said that the principle that

parties must co-operate with each other in order to allow each

party to fulfil its obligations under the contract is essentially a

rule of construction of the particular contract, rather than a rule

on implied terms. Nevertheless, Winther Browne should

still be borne in mind because a key point made by the Court was

that whilst the supplier may be the IT specialist, the customer

knows its own business and, particularly in...