Contract killers

Schools inevitably enter into a bewildering variety of agreements with suppliers. Doug Locke analyses the relevant issues to all contracts, with a particular focus on specific areas of concern to independent schools

Disputes with suppliers take time and money to resolve. Written contracts help to avoid most disputes by setting out clearly each side’s rights and responsibilities. They also protect the school if something goes wrong. Before entering into an important contract, it is necessary to carry out research into the supplier by speaking to trusted contacts in the sector. Only dealing with people with a good reputation will help to avoid disputes.

Other than for routine purchases from large suppliers, it is rarely a good idea to deal on the supplier’s unamended standard terms. Inevitably, such terms will strongly favour the supplier, and are likely to result in a bad deal for the school.

Confusion can sometimes arise as to whether a contract has been concluded and, if so, whose terms govern it. It is important to regularise the school’s procedure for signing (and filing) contracts, and to make sure the school’s staff observe that procedure. Otherwise, the school might unwittingly be bound by the supplier’s standard terms.

Issues common to all types of contract
A contract is no good if it does not set out unambiguously:
• what the supplier has to do;
• when it has to do it; and
• how much of it will be paid.

This might sound obvious, but disputes often arise because contracts are not clear on these three fundamental points. Achieving an unambiguous expression of these points is deceptively difficult.

Other issues common to all types of contract include:
• what happens if the supplier breaches the contract? The consequences of a particular type of breach should reflect the importance to the school of that type of breach;
• under what circumstances may the school terminate the contract? It is common for schools to have the right to terminate following severe or repeated breaches. However, it is also desirable for a school not to be tied into a long-term contract if a more desirable alternative becomes available; and
• what level of interest will the supplier be entitled to if the school is late in paying? If the contract is silent on this point, the statutory rate will apply. At 8 per cent above base rate, that rate is surprisingly high, so it is advisable for the contract to specify a lower rate.

Outsourcing contracts
The rationale for outsourcing is that a specialist supplier should be able to provide specific services more efficiently
than the school’s inhouse alternative. For example, if catering services are outsourced, the school is relieved of the recurring administrative burden of recruiting catering staff and replacing catering equipment.

Apart from catering services, schools often outsource cleaning, security, facilities management, IT support services and fundraising. It is common for outsourcing contracts to set out service levels, linked to key performance indicators.

If the service levels are not met, the contract will typically provide for service credits – effectively a mechanism for
compensating the school. The contract should also allow the school to terminate if the supplier fails to meet the
service levels in a manner that is of particular importance to the school, or if it repeatedly provides a below
par service.

It is common for TUPE regulations to have an impact on outsourcing arrangements. TUPE protects employees if the function they perform is transferred from one undertaking (such as a school) to another undertaking (such as a supplier). TUPE can also have an effect if the function is assigned from one supplier to another or is brought back inhouse. It is vital to set out in the contract with the supplier the responsibilities of the parties upon transfer of the relevant function to, and from, the supplier.

IT outsourcing arrangements are likely to involve the passing of pupils’ personal data to the supplier. If managed badly, this could breach data protection law. Parents understandably regard the security of personal data relating to their children as a serious issue. Consequently, it is important to include data protection issues when planning an outsourcing project. It is also important to oblige suppliers to ensure that their employees have, where appropriate, been subject to CRB checks.

Outsourcing arrangements tend to be rather long. Consequently, it will be appropriate to include mechanisms to ensure that the service and price remain competitive. For example, outsourcing contracts sometimes provide for periodic benchmarking against services and prices offered by the supplier’s competitors. The outsourcing contract should provide for an orderly handover of the relevant function upon termination, to minimise disruption to the school.

Contracts with designers/photographers
In the absence of a written agreement to the contrary, the designers of a prospectus or website will own copyright
in it, even though the school paid for the work to be done. In practice, this means that:
• a school cannot update its website without the designer’s consent; and
• a school cannot reprint its prospectus without the designer’s consent.

These problems can prove expensive for schools. To overcome them, sign an agreement with the designers, setting out the school’s rights over its website or prospectus. The best practice is to sign an agreement before work starts (and before money is paid). However, it is sometimes possible to sign a retrospective agreement before awarding a new piece of design work. A similar issue arises with photographs. The photographer will own copyright unless he agrees otherwise, and so the school will not be able to re-use his photographs without his consent.

Agreements with website designers are becoming increasingly important as websites (and intranets) are now central to the operation of schools and to the recruitment of pupils. In particular, more schools are incorporating online shops into their websites. Online shops have benefits for schools and parents; they offer parents added convenience while generating extra revenue for schools. However, they need to be set up properly to ensure that they comply with regulations governing contracts made at a distance. For example, parents must be given written confirmation of an order by the time the goods are delivered, and parents must be offered a cooling-off period in which they may cancel purchases.

Transport contracts
Recent fluctuations in fuel prices have led to discussions between schools and bus companies over price changes.
Clearly, it is important to avoid being tied into a long-term contract that allows prices to be increased despite cheaper alternatives being available. This is an issue that many schools should address when transport contracts
come up for renewal.

Safety is also a particular issue in transport contracts, and is understandably a concern for parents. A problem,
even if the school is not to blame, could prove a reputational issue for the school. Consequently, the contract should set high safety standards (including, for example, the right to conduct spot-checks on tyres). It should allow for termination if those standards are not met or if a school bus is involved in an accident that was not the fault of a third party.

Uniform and sports kit
Selling uniform and sports kit bearing the school’s crest can provide a useful source of revenue. However, the
quality of those products will reflect on the school. The contract should set appropriate quality standards, and oblige the supplier to refund the school for products that are be sub-standard.

It is also important to specify that the products should be made in conditions that reflect proper regard for human rights. No school would wish its products to be made in poor conditions, or to suffer the resulting negative publicity.

Doug Locke is a partner at Veale Wasbrough Lawyers.

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