Changes or variations to commercial contracts - reasons and risks

Business needs often drive formal commercial contract changes - updated scope, extended deadlines, revised terms.

Often the biggest risk is ignorance of the risk that a written contract can be varied inadvertently and/or not documenting any agreed amendments. Accept late delivery, ignore breaches, or allow informal changes to become routine, and courts may infer you've waived crucial rights. These silent modifications typically favour the non-compliant party, leaving you stripped of key protections like termination rights or strict payment terms.

We advise and assist clients on contract variation issues and build robust variation clauses requiring written agreement for any modifications, and include "entire agreement" and "no waiver" provisions.

Key points to note with contractual variations

It’s important to always bear in mind :-

• No unilateral changes - with any contract, the existing terms cannot be varied without the consent of both parties. Failure to recognise this can mean you end up in breach of contract. Consent can sometimes be implied as well as express (see below).

• Is there a formal contractual process for agreeing variations? - Many contracts provide a strict process for any variations to be agreed and that the contract can only be varied in a formal way. If this clause is not included, be aware that contracts can very easily end up being varied by an exchange of emails or text messages or even verbal communications.

• Variations can be made by conduct - Whilst in UK law silence does not constitute acceptance, variations can occur based on no express agreement to vary but where variation occurs by conduct. As an example, if a supplier regularly invoices a customer, and the customer consistently pays late, without objection from the supplier, this may imply a variation of the payment terms.

• Be wary of waiving contractual rights - quite often with contracts, where payment terms are not complied with and there is no enforcement, there is a danger that a repeat of late payment in the future may not be enforceable. A method of protecting your interests if you allow a short term change or leeway with contractual terms, is to make it clear in writing, that you have not agreed to vary the contract and that you are not waiving your rights to ensure strict compliance going forward.

Who seeks to renegotiate or vary commercial contracts and why?

Long-duration supply of goods agreements and service outsourcing arrangements experience the most frequent renegotiation activity, primarily due to market instability and evolving commercial requirements.

Buyers/Customers initiate renegotiation due to:

• Poor supplier performance or approaching contract renewal dates

• Financial pressures requiring cost reduction during challenging economic periods

• Evolving operational needs or decreased purchasing volumes

• Availability of more competitive suppliers or favourable market shifts

Key Terms Subject to Renegotiation:

• Price structures - transitioning from static pricing to variable models tied to economic indicators like inflation indices or market benchmarks

• Payment terms - extending payment periods to enhance working capital and cash flow management

• Purchase obligations - adjusting minimum order quantities proportionally when prices increase to maintain budget consistency

• Performance standards - revising service level agreements and key performance indicators in service contracts

• Exit provisions - incorporating termination clauses that activate when price increases render contracts economically unviable

Need further advice?

If you need legal advice on a contract issue or a change or variation to a contract, please do call or email. We regularly advise and assist clients with :-

• Draft robust terms and conditions - requiring written agreement for modifications, with "entire agreement" and "no waiver" provisions to prevent inadvertent changes through conduct

• Structure flexible contracts with built-in review mechanisms - such as price adjustment clauses, and change management procedures that accommodate business evolution.

• Negotiate formal variation agreements - ensuring proper consideration, compliance with original terms, and protection of client interests during contract modifications

• Advise on claims and disputes about variations - analysing whether contractual rights have been compromised through parties' behavior or course of dealing