“But I’ve used that form contract for years!”  Why you need to review and update your company’s contracts

Contracts are a critical part of operating any business.  Companies have contracts with suppliers and vendors, partner companies, landlords, and clients, among others.  Often, contracts may not be in writing but are just verbal, such as with a longstanding supplier.  But many contracts are in writing, often based on a form or template that a company has used over and over again.

While having form contracts can save time and effort, it is important to review those contracts periodically to make sure they comply with current law and are protective of the company’s interests.  In addition, it is a good idea to review long-standing contracts in light of any changed circumstances in the business relationship.

Why update your current contracts?  Here are a few reasons:

• Cybersecurity: if you have a contract with a vendor that handles, stores, or processes confidential customer or employee information, does the contract require that vendor to take affirmative steps to safeguard that data from hackers and cyberattacks? Does it require the vendor to have cybersecurity insurance, and to indemnify you if they are hacked but customers or employees sue your company?
• Service level agreements with companies providing services such as phone, website, or software: as your company grows and its needs change, the original service levels may not be adequate.
• Pricing: some contracts have formulas for price increases, often based on inflation or the consumer price index (CPI).  If this formula has been in place for several years, it may not reflect current economics.
• Invoicing: older invoicing and payment terms may date from the days of paper invoices, checks, and “snail mail.” If you are set up for electronic invoicing and online payments, your contracts should state this, so that you receive payments faster and reduce outstanding receivables.
• Employment agreements: if your company has written employment agreements, you should review these yearly, as both federal and state employment law can change frequently.
• Independent contractors: state and federal agencies have begun to crack down on misclassification of employees as independent contractors; under Colorado law your independent contractor agreement must contain certain specific provisions, or the state Department of Labor will consider the person to be a W-2 employee.
• Warranties: the law on product or service warranties can change, so your company’s warranties and limitations on liability need to be current.
• Notice/termination provisions: some contracts and leases provide for automatic renewal, while others require written notice to terminate or renew,with different amounts of advance notice required, from 30 to 180 days or more. You should review contracts and leases to make sure you don’t miss any such dates (and you should track all of these separately anyway).
• Dispute resolution: you want to make sure the contract’s dispute resolution provisions reflect your business needs, such as whether you will require mediation, arbitration, or litigation, and where a suit would be filed, in case your location has changed since the last time the contract was revised.

These are a few of the areas that can create legal or business problems if not kept up to date.  This review can be part of an overall audit of the “legal health” of your company.  If you would like more information, you can contact Mark Spitz, at Spitz Legal Counsel LLC, by email at mark@spitzlegalcounsel.com, or call or text at 720-575-0440.