Do you know what contracts you are entering into?

Kirsty Odell, senior solicitor in the corporate healthcare team of law firm Hempsons, looks at potential liability for practices entering contractual arrangements.

Published in Practice Management 12 October 2019

Every business will enter into contracts with a number of different providers and suppliers – but do you really know what you are signing and the risks for your practices? Who really does read the standard terms and conditions offered for most goods and services? In business-to-business contracts there are far less protections than are available to individual consumers.

A recent case (Premium Credit Ltd v Primary Care Management Solutions Ltd & Ors) has highlighted the potential liability for GP practices entering into contractual documentation.

In this case, three GP practices entered into an arrangement with a locum recruitment agency to source and provide locum GPs to the practices where vacancies arose. The arrangement required fees to be paid upfront to the agency and the GP practices therefore entered into a financial agreement with a separate credit company to assist them to meet the upfront costs (noted in the judgement as £900,000). The recruitment agency has since gone into administration and is not providing the services.

The GPs appear to have sought comfort from the recruitment agency that there would be no recourse to them for outstanding payments under the credit agreement if the arrangement with them were to be terminated. However, the contractual document as signed did not offer such protection. The GP practices are still liable to repay all sums owing under the financial agreement, for no ongoing benefit from the recruitment agency.

‘Large or valuable transactions, potentially involving multiple contracts with different parties, can be complicated and misunderstandings may easily arise’

Large or valuable transactions, potentially involving multiple contracts with different parties, can be complicated, and misunderstandings about liabilities may easily arise. It is essential to ensure that the paperwork reflects the commercial reality and understanding of the parties.

Commercial terms

Some key commercial terms that GP practices should be aware of when entering into contractual arrangements are:

  • Term – how long is the contract for and how does it terminate? Some contracts include provisions for automatic renewals (if no notice is given), which may leave you paying for services you no longer want.
  • Specification – is it clear what you are going to receive under the contract? Specifications that include reference to agreeing terms or services after the contract has commenced may be difficult, if not impossible, to enforce
  • Limitation on liability – a supplier may seek to limit its liability under a services agreement
  • Indemnities/warranties – these are terms to describe types of obligations in the contract. These can be very important terms depending on the nature of the contract and should always be scrutinised with care
  • Entire agreement clause – this clause seeks to exclude any other agreements made between the parties that are not included in the formal documentation. Where you may be relying on sales materials or statements made by the sales representatives in selecting a product or supplier, details of these should be included in the specification.