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Law of Contracts – Part 14

In Part 1 (August 2014), I categorised risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. In this series, I deal with the risk profile of each, i.e. broadly speaking the areas of risk that any business is exposed to can been allocated under these five categories.
In Part 2, (September 2014), I covered the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); and Business Associates.
Part 3 (October 2014), continued with ‘PEOPLE’ as Customers.
Part 4 (November 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES.
Part 5 (December 2014), looked at CREDIT and CREDIT CARDS.
Part 6 (January 2015), looked at LAW and CONTRACTS, with an introduction and Requisite #1: Offer & Acceptance.
Part 7 (February 2015), continued with Requisite #1 covering telephone enquiries, e-mails, websites and advertising.
Part 8 (March 2015), covered Requisites #2: Legally Binding Obligation, and #3: Consensus in contracts.
Part 9 (April 2015), covered Requisite #4: Performance Must Be Possible.
Part 10 (May 2015), covered Requisites #5 & 6: Performance Must Be Permissible, and Capacity of the Contracting Parties.
Part 11 (June 2015), continued with Requisites #6: Capacity of the Contracting Parties.

Part 12 (July 2015), covered Requisite #7” Negotiating a Contract.
Part 13 (Aug 2015), covered Requisite #8 Drafting a Contract.

REQUISITE #9: CONTRACT MANAGEMENT

The concept sounds like ‘donkey work’, something for ‘the backroom boys’ eh? Well, let me tell you something, when a claim arises or when the contract in question comes up for renewal, you will be more than happy that you have made contract management an integral part of your office management strategy.

Effective contract management starts at the time that the contract is negotiated. As discussed above, it is imperative that contracts be recorded in writing. It is at this point that contract management starts, namely the signing of the contract. What is so important about the signing of the contract? Well, at this point the following aspects should be monitored failing which you may very well not have a binding agreement and all the hard work negotiating the contract and reducing it to writing will have been in vain!

• Ensure that all the parties signing the contract (other than the witnesses obviously!), and who purport to do so in a representative capacity are duly authorized. This means they must produce a written mandate in the form of either a power of attorney (if they represent an individual) or a resolution (if they represent a legal entity such as a company);
• Each page of the contract must be initialled by each party and the witnesses AS WELL as any annexures;
• Any amendment must be initialled likewise e.g. sometimes when a contract is in the process of being signed, someone may notice a minor error which is then not re-typed but simply corrected in pen
• The signatories representing the principal parties to the contract must sign the last page if full;
• The place where the contract is signed and the date this is done must be filled in (usually on the last page);
• Sign sufficient copies so that each party has an original
• Date and number each draft;
• Mark changes clearly: either by colour or ‘track changes’ AND identify who made which changes AND, if relevant, why;
• Keep minutes of meetings pertaining to negotiations;
• Keep ALL drafts on your PC for at least 2 years: this and the points above will help you & any other party (especially when or if you are not around) to recall or understand the ‘history’ behind the agreement in general and complex clauses in particular.

Do not start doing business until the contract has been signed!
I know many relationships start on a ‘casual basis’ (e.g. the ‘handshake contract’) and more often than not this does not give rise to a problem per se, but it is the one instance where a contract is not properly concluded and a claim or issue arises that can mean the end of your business (and the friendship!). If a contract is not signed, there may well be a dispute as to whether or not there was in fact ANY agreement or if there was, what the terms were.

Make sure that you have a binding contract and not ‘an agreement to agree’
I was recently asked to vet a document which was ostensibly a contract between two willing parties but, as many components had not been finalized, it would not have been regarded as a binding contact. Courts often have had to declare ‘contracts’ of that nature ‘null and void’ or ‘void for vagueness’.

Once you get back to your office, ensure that the following is done by someone you have appointed as being in charge of your contract management:
• Go through the contract and make sure all the points specified in my second paragraph above have been complied with;
• A certified copy is made of the contract;
• It is kept in an agreed, safe place;
• Make an executive summary of the key components;
• Record separately essential information e.g. renewal, termination and escalation dates AND ensure that these are diarized (AND monitored).

Who should be in charge of your contract management?
There are a few statutes that require a business to have a ‘compliance officer’. As I often say at my workshops, turn this apparent ‘threat’ into an opportunity i.e. extend that individual’s portfolio into contract management and run a more effective business. This of course ‘dovetails’ very nicely with my ‘Legal Audit’TM’ concept (More about that in future editions of Tourism Tattler).

Disclaimer: This article is intended to provide a brief overview of legal matters pertaining to the travel and tourism industry and is not intended as legal advice. © Adv Louis Nel, ‘Louis The Lawyer’, September 2015.