The fairness of contract terms

The UK government’s announcement of a new ‘Commissioner for Small Business’ is just the latest in a series of initiatives by administrations around the world to encourage economic growth.

One area of concern is the belief that large companies tend to bully their suppliers, using their size to impose unfair and unbalanced terms and conditions. The most obvious example is payment terms, where the period for payment continues to grow and getting paid can be difficult and time-consuming. IACCM recently issued a report on this topic.

These initiatives have to be seen in the context of two distinct, but related, concerns. One is to support the growth of domestic small / medium businesses. Another is the challenge of holding global enterprises to account, whether it be through anti-competitive behavior or creative schemes to avoid tax.

On the former issue, governments are introducing a variety of schemes through local content requirements (note IACCM ran a webinar on this topic last week) and use of public procurement to favor small businesses. Often these depend on large businesses for implementation. They also challenge the commercial skills of the small businesses – their relative immaturity is part of the problem.

On the issue of holding big business to account, we must expect a growing wave of intervention and regulation. The UK initiative is one example; recent legislation on human trafficking and slavery is another; the focus of national tax departments on commercial models and practices is a third.

‘Fairness’ is not easy to mandate and is best achieved through the sort of ethical standards and policies that some corporations clearly follow. It is my belief that the contracts and commercial function must sit at the heart of ensuring terms, conditions and business practices reflect favorably on corporate reputation and brand image.