The Three-Year Handshake: Seven Contract Questions UK Directors Should Ask Before Committing

The three-year contract is seductive. It offers a lower unit price, a longer planning horizon and the comforting appearance of a strategic partnership. It also removes options. For a growing UK company, the danger is rarely the headline price. It is the machinery around it: the index, the notice window, the exclusivity clause and the change-of-control provision that nobody read because the commercial team was focused on the discount.

This is not a legal checklist. It is a director’s checklist. The aim is to raise the right questions confidently, get the answers in writing, and make the contract’s mechanics visible to the board before signature.

1. What exactly is indexed, and by how much?

Ask: which price elements are subject to indexation, which index applies, how often, and is there a cap or collar? A contract that says ‘prices will be reviewed in line with inflation’ is not a term; it is an invitation to argue. CPI, CPIH and RPI produce different numbers, and the difference compounds over three years.

Ask for a worked example using the last three years of published figures. Ask what happens in a deflationary period. Ask whether the supplier can choose the index at review time. Record the answer in the pricing schedule, not in a side email. If the answer is vague, treat the vagueness as a future increase.

2. When does the exit window open, and how long is it?

Ask: what notice is required to terminate at the end of the term, and what notice triggers automatic renewal? A three-year contract with a six-month notice window is, in practice, a two-and-a-half-year commitment unless the diarised reminder is owned by someone.

Ask for the dates, not the formula. Put them in a calendar owned by two people. Ask whether notice can be served by email and to whom. Ask what happens if notice is served one day late. Record the answer and diarise the window a month before it opens.

3. Is there exclusivity, and what does it cover?

Ask: are we restricted from using other suppliers, or is the supplier restricted from serving our competitors? Exclusivity is not always bad, but it should be priced. Ask what volumes or service levels the supplier commits to in return. Ask what happens if they fail to meet them.

Ask for carve-outs: group companies, acquisitions, emergency cover, specialist projects. Record the scope in plain English. If the salesperson says exclusivity is ‘standard’, ask them to show you the clause that makes it standard for a company of your size.

4. What happens if either side changes control?

Ask: does a change of control trigger consent, termination or renegotiation? This matters if you might sell the business, bring in an investor, or acquire a supplier. It also matters if your supplier is acquired by a competitor or a private-equity buyer with a different cost model.

Ask whether the clause applies to both parties. Ask what ‘control’ means in the definition. Ask whether consent can be withheld unreasonably. Record the answer and flag it in the board’s transaction planning. A change-of-control clause can turn a routine fundraising into a supplier negotiation.

5. What service levels actually bite?

Ask: what are the service levels, how are they measured, and what remedy applies if they are missed? Service credits are not much use if they are capped at a trivial percentage of monthly charges. Termination rights are not much use if they require a year of documented failures.

Ask for the reporting pack you will receive, the escalation route and the remedy ladder. Ask who pays for root-cause investigations. Record the answers in the contract schedule and make sure someone owns the monthly review.

6. Who bears the risk of cost shocks and legal change?

Ask: what happens if energy costs spike, new data-protection rules arrive, or a subcontractor fails? Force majeure clauses are often broader than directors expect. Change-in-law clauses can be one-sided. Subcontracting clauses can hide a dependency you have not approved.

Ask for a list of material subcontractors and the notice required to change them. Ask whether insurance covers the gap. Ask what happens if the supplier’s own supplier goes insolvent. Record the answer and put the top three risks on the board agenda.

7. How do we get out early, and what does it cost?

Ask: is there a termination for convenience right, a break point, or an exit assistance obligation? Ask what we would owe if we left at month twelve, month twenty-four and month thirty-six. Ask what happens to our data, transitional services and any equipment.

Ask for the exit calculation in writing. A contract that is cheap to enter and expensive to leave is not a good contract. Record the answer and keep it with the contract summary.

The discipline is in the record

None of these questions requires a lawyer to ask. They require a director to be curious before signature and disciplined afterwards. The answers should be written into the contract, the schedules or a signed side letter. If the supplier will not put the answer in writing, that is itself an answer.

A three-year term is not a strategy. It is a commitment. Ask the seven questions, record the responses, and make sure two people know where the file is. Then sign.