Key contract considerations
Learn about contracts and what to look for in one.
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By ensuring that a contract does not have any unreasonable conditions, schools can remove some of the risk that is associated with signing contracts.
It is essential that a contract is signed between schools and suppliers when buying goods and services.
Written contracts provide a clear record of the agreement made between a school and supplier, stating:
- the scope of the purchase
- the price payable
- the roles, responsibilities and legal obligations of the school and supplier
- how any changes to the contract can be made.
Contracts are legally binding and therefore should always be examined closely before they are signed.
Joining collaborative contracts reduces risk for schools as the terms of collaborative contracts are preferential and standard for government agencies.
Each collaborative contract has gone through extensive reviews. These reviews have been carried out by either New Zealand Government Procurement or the contract’s lead agency (such as NZ Police or NZ Post).
Government Model Contract templates have been prepared by New Zealand Government Procurement (NZGP) for use across government, including by schools. These contracts could be used for low-value, low-risk common goods and services. They contain safeguards to protect schools when buying.
Using these contracts can reduce the need for negotiations and legal advice when making a purchase.
- Schools should use the non-Crown templates.
- The 3rd edition templates should be used for all new contracts.
- The Lite contract is only for very low-risk and low-cost deals, such as for one-off purchases.
Access the templates at the bottom of the page below, or see the guide.
Writing a bespoke contract can provide schools with greater control of the contract’s terms.
However, to prepare a custom-made contract, schools will need to engage a legal expert. This is likely to be time consuming and costly and must only be considered by exception where a suitable standard contract form or suppliers’ contract does not exist.
Suppliers might have their own contract which they provide to schools.
For low-value, one-off purchases of goods, or for standard goods or services (electricity contracts), these contracts may be a suitable option.
Schools should always be sure that the terms of a supplier’s contract are fair before signing, paying close attention to important clauses.
Before signing a contract, buyers should always examine it carefully.
The clauses below are some of the areas that should be focussed on.
Schools should ensure that the length of the contract meets their needs.
Schools should only sign a long-term contract when confident that its terms will meet their needs for the entire period covered.
It may be a smart choice to sign a longer contract for goods or services that fluctuate in price, such as gas and electricity, to secure a stable price. Signing long-term contracts can provide schools with increased financial certainty over an extended period.
However, it is not worth signing a long-term contract if there is a risk that doing so will later result in goods or services being purchased that are no longer needed.
Rights of renewal
Schools should include a right of renewal in the contract that can be exercised at their own discretion.
Rights of renewal give schools the option to extend their arrangement with a supplier beyond the end of the initial contract term.
Having the option to renew contracts can provide schools with increased financial certainty and continuity of supply over an extended period.
The contract must specify the process for exercising the right of renewal including notification to the supplier of the intent to renew and timeframes by which such notice should be given.
The school’s and supplier’s rights as part of renewal (e.g. whether there will be any price reviews) must also be specified.
Renewal periods do not need to be exercised. A renewal should only be used by a school if the supplier’s offer continues to meet all of their needs.
If a school believes that the supplier’s offer may no longer be the best available, they can ignore the renewal option in their contract and allow it to end as originally scheduled.
Typically, renewal periods will last for a shorter time than the original contract term. Multiple rights of renewal may be added to a contract, so that it can be extended multiple times.
Sometimes schools choose to leave a contract with a supplier before it expires. When this happens, the school is usually required to provide the supplier with a period of notice.
A notice period sets a date in the future on which the contract ends, replacing the end date originally stated in the contract.
Schools should ensure that their contract does not have an unfair notice period.
A fair notice period must consider the time it will take the supplier to disengage from the contract and close out any obligations to its staff involved in the delivery of the contract. This might be a few business days for common goods, to a couple of months for services contracts.
Some contracts will state that suppliers are to be provided with an unfairly long notice period (especially where a supplier’s contract form is used), which can force a school to continue to do business with them for an extended period.
Shorter notice periods, that are fair to both the school and supplier, should be sought. The 20 days stated in the Government Model Contracts is a good example.
Termination rights and costs
Sometimes schools choose to leave a contract with a supplier before it expires. When this happens, the school may be required to pay an early termination fee to the supplier.
Schools should ensure that their contract does not penalise them an unfair amount for termination.
Usually, it is fair that suppliers receive an early termination fee, in cases where they have made investments up front (in time and money) which they were expecting to recover over the term of the contract.
However, suppliers may try to get schools to sign on to contracts which include unfairly expensive early termination fees, so that they are less likely to choose to terminate their contract early.
Early termination fees are fair and transparent under collaborative contracts and Government Model Contracts.
Changes in services required
Schools should ensure that there is a clear process for them to change their arrangement with a supplier, if required.
A school’s needs will often change over time. When this happens, a school should request a variation to their contract with a supplier. This will prevent the school from paying for goods or services that are no longer wanted.
Some contracts make it difficult or costly for schools to alter the goods or services provided by a supplier.
There should be no penalty associated with making a variation to a contract (aside from a potential change of cost resulting from a change of scope of services).
Schools should ensure that the performance standards to be met by the supplier are written in the contract.
When performance standards are written (along with associated performance measures), it is possible for a school to judge if a supplier is meeting their requirements. Performance measures should be reported as part of the scheduled reports.
If the supplier is found to not be meeting their performance standards for a prolonged period, the school can then potentially terminate the contract.
Reporting and meetings
Schools should ensure that they receive scheduled reports from suppliers and have the ability to arrange a meeting with the supplier, when required.
It may not be necessary for every scheduled meeting to go ahead, but schools should have the ability to attend one with the supplier, if needed.
Key named personnel
A school’s relationship with a supplier is often based on communication with the supplier’s key contact, especially for a services contract where the supplier’s personnel must be on-site at the school regularly.
Schools should ensure that they will be notified if the supplier’s key contact changes and seek to have the ability to accept or turn-down the replacement.
If either the school or supplier’s key contact changes, the other party should be informed of the change in writing.
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