At Smart Procurement World ('SPW') Indaba Gauteng 2017 Xavier Greyling <firstname.lastname@example.org> spoke on some basic fundamentals on drafting and interpreting contracts so one can safely navigate the minefield of the law in South Africa. Xavier is an admitted attorney and proven procurement and commercial strategist with more than 15 years’ experience owning a consulting company known as XG Consult.
Xavier explored what is required in a contract and what each segment of the contract dealt with. He gives reasons for the importance of that segment as well as suggestions on what to cover.
In his interesting talk he aims at the corporate and more developed market. This gives the SME market an idea of how they should structure contracts so as to compete successfully.
Watch the video to learn what a good contract should include for both parties to be successful.
As a small business in South Africa finding legal assistance is near impossible. One can’t go to Legalwise as they only deal with the individual and legal firms are out of reach due to budget constraints.
So one turns to drafting or sometimes simply by-passing all legal documents and carries on regardless. This becomes a problem when the business hits a bump or if one wants to grow the company. Although verbal contracts are legal and binding they are hard to prove. You also can’t take a verbal contract to the bank for a loan or the government for tender work.
Legal documents such as contracts are perceived as a tool for lending, measuring the business success and leverage in other situations. The more you have the better the business.
The documents give you power in getting paid for work carried out, as it sets down what is expected from the client and what the service provider must offer. It also deals with other stipulations which could impact the business heavily.
When breaking out into the field of contracts it is ok to start with your own little contract drawn up on a serviette as you discuss the ideas over a cup of coffee but this should then be taken further into an official document containing all the parts Xavier refers to. Bear in mind that you are not a lawyer or as savvy as you think in legal jargon and methods so at some stage you are going to need to take the same document to a lawyer who will draft it into a water tight agreement.
Always keep documents filed and as secure as possible. When you have a lawyer this adds another layer to this security as they are bound to keep a copy which is why you have to pay stamp duty on them. Somewhere in the country (normally in the big cities) is a vault known as the Deeds Office where legal documents are filed. Not all documents are required by law to be filed there but those relating to births, deaths, inheritance and company formation are. Other documents can be filed at the lawyer.
In the presentation Xavier refers to B-BBEE however as a small company you don’t have to fill that requirement. To grow the company you do have to fill the requirements, of which one is 51% ownership by a black person. This means that white companies need not look to grow beyond family size as they will be prejudiced against. If they feel strong enough to give 51% of their company away either in sale or equity, a contract is highly important especially when it comes to the get-out clause.
Again as Xavier points out the breach of contract clause is very important. I have had a situation where the other party simply crossed out the breach part however they did not initial it and since I did not initial it, the cross-out was invalid. Had this contract been taken to court it would have been thrown out as invalid and a verbal contract would be presumed to be in place. People do strange things to contracts so always watch out for the wording and what it means. If you are not sure get someone else (preferably a lawyer) to read the contract and see if you both understand it the same way.
The money clause is also highly important as I have seen contracts where this has simply been left out. If you do not have a start off point the contract has no value. A contract can run for years but a start-off point with an escalation amount (10% increases etc.) gives the contract a value which can be taken to the bank for a loan.
Remember to signature everything. Initial (the first letter of your names) all pages, corrections and written parts and then sign, date and place the last page. Both parties must do this and a witness is desirable in case of a dispute.