In need of a change?

Have you got a question?

An important, but sometimes overlooked, contract provision relates to ‘change control’. It is usually more prescriptive than a general ‘variation’ clause that requires variations to be in writing and signed by the parties.

A change control clause is one where, due to business needs or a significant change in circumstances, one or both parties want to substantially change a specific part of the contract. Like a variation clause, it aims to regulate change and exclude the possibility of informal, and perhaps inadvertent, variations being made to an agreement orally, or by conduct.

For example, the client’s requirements may change, which means the amount to be charged to the client is no longer appropriate.

There may have been a change in law or regulations, or a sudden/unavoidable change in how much providing the service will cost the supplier, or necessary adjustments to timescales. This may be particularly pertinent following Brexit; for example, with changes to tariffs or timely availability of certain goods or services.

A change control clause is important because it can provide a proper process by which the scope of the service provided can be altered. A properly drafted change control clause gives the parties clarity about a proposed change and the implications (both financial and otherwise) if it is agreed, or if itis not agreed.

There are a number of things to look out for or avoid. First is the service provider having to unreasonably bear the costs (and loss of income) associated with a specification change implemented or demanded by the client. Secondly, the client’s ability to reduce the scope of the service beyond an acceptable amount (for example, 5%) or alternatively an extension without appropriate remuneration – a service provider may also want to be able to terminate the contract if the service reduction makes the contract no longer economically or commercially viable. Third, a party’s ability to impose a change unilaterally.

It is in the interests of both parties to have clarity on the contractual requirements where changes are needed or proposed

Change control clauses should provide for either party to request a change separately. A sensible first step is for the party wishing to introduce a change to send the other a written request with as much detail as would reasonably allow the other to be able to properly consider the request.

For the more complex services, a good change control clause will often have proforma request/response templates, with sections about the types and level of information that must be provided in order for the other party to make a properly informed decision about the proposed change and respond appropriately. It should also specify time limits for the steps in the change process and the consequences of non-compliance with those deadlines.

The clause should require any negative response be accompanied by reasoning and allow at least one opportunity to reconsider, for example, following a meeting. If the parties agree to the proposed change, the requirements to document the change should also be specified, for example, by way of a signed ‘Change Control Note’ or ‘Contract Variation’ that is signed by the authorised person for each party.

Overall, it is in the interests of both parties to have clarity on the contractual requirements where changes are needed or proposed; this can significantly reduce the potential for disputes further down the line.