When settling a supply contract for a London law firm this month we were sent a list of red line amendment requests by them to alter their supply terms and conditions. The customer was considered an SME account so any chance of the supplier entertaining the changes were virtually zero. I&C customers can effect some of their terms and conditions but in the SME market the suppliers’ general T&Cs are very much take it or leave it.
The lawyers were surprised by how weighted the T&Cs were in the suppliers’ favour to the point they could be challenged under The Unfair Contract Terms Act or the Sales of Goods Act (however, businesses have very limited rights under these Acts). One reason that suppliers won’t review SME T&Cs is not that they are unreasonable per se but it would require getting their board and their lawyers to sanction the changes, which would be a costly exercise rendering the contract (and perhaps their SME model) commercially untenable. So if the suppliers and any SME customers have an issue during their contractual relationship, the SME customer can well find themselves checked in every conceivable scenario.
In the case of the SME law firm, we explained that the supplier’s terms and conditions “are not for turning” and pointed them to their existing terms and conditions, which they liked even less, to demonstrate that every supply contract would distribute the balance of power in the suppliers’ favour.
However, the reality is that suppliers often don’t invoke their T&Cs at every opportunity and the need to keep good relationships with the SME market keeps things in check as SMEs and their brokers have the power to vote with their feet and leave suppliers en masse; which I have seen happen, particularly in relation to suppliers that invoke their Take of Pay terms. Given the value of the contract, I&C customers have far more commercial control when it comes to negotiating T&Cs even though the suppliers starting position won’t be ideal. Areas where it pays dividends for I&C customers to negotiate are:
- shape or baseload optimisation;
- tariff structures;
- take or pay terms;
- wholesale trading terms;
- non commodity charging terms;
- termination (addition and removal of supplies).
Often you can overlook the fine print and 99% of the time it won’t matter. However, that 1% of the time can be costly (EMR terms needs particular consideration) and might need a huge amount of retrospective time and resource to resolve the situation. I&C contracts “should be like clothes and fit the people they serve” and you should also consider how the terms impact wider policies like demand management and ESOS.
Want to know more? Register for our free workshop. ESOS & Energy Contract Training Seminar, 2nd December 2014, Glaziers Hall (lunch and refreshments provided), click here.