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School's News Letter

Contracts

We all enter into various contracts on a daily basis whether in a professional, business or personal capacity; from leasing a photocopier; to engaging a surveyor; to buying a pint of milk, these are all contractual relationships.

We receive a multitude of queries and requests for assistance from schools in getting to the bottom of their contractual relationships with their suppliers of goods and services and resolving problems that arise. For example;

1.    Contracts that are offered as "too good to be true."

Probably nearly every school in Essex has a contract to hire equipment, usually faxes, telephones and photocopiers. These contracts last for a period of time during which the equipment is leased to the school and alongside this lease is a service/maintenance contract with a third party provider.

Usually these two contracts are co-terminus and one cannot survive without the other.

This arrangement is quite standard but issues start to arise as the lease draws to a close. The school will often find a sales representative (concerned that you will source your equipment elsewhere!) offering to renegotiate a new lease and service contract for a further period; sometimes the school may receive a substantial cash payment/inducement, often many thousands of pounds. If this happens to you, STOP and consider the following before signing any contract or lease:

a.    Is this a current local authority supplier?
b.    Is the lease term for more than 3 years? Essex Finance Regulations state 3 year lease terms, and no longer, should be entered into.
c.    What are the early settlement terms and notice required to terminate the lease early?
d.    What is the total value of the equipment you are acquiring? If it is evident that the total cost of the lease payments over the lease period is considerably more than the actual cost of the equipment if purchased outright then this is probably a finance lease and Essex schools are not permitted to enter into these. Essex schools should only enter operating leases whereby the school is paying a market rental for the hire of an asset for a period of time.
e.    Is there an upfront cash incentive and/or the possibility of cash payments to the school during the course of the lease?
f.    Has the previous lease and service contract both terminated and the school owes no liability under either? It is not uncommon for a school to receive new equipment whilst still paying for the old equipment even if not being used.

Therefore:

  • If the contract you have been asked to sign seems to cause concern when read in conjunction with the points above, you should seek further advice because the County Council does not endorse products offering cash advances coupled with leasing arrangements. Schools will be acting outside their powers if they do enter into such arrangements.
  • Do not sign a contract leaving the sales representative to fill in the blanks. Ask the sales representative to explain what the penalties are for early termination and for the total cost the school will pay during the life of the lease.
  • Finally, you need to ensure that the service contract is robust. What happens if the leased equipment continually goes wrong and the maintenance contractor fails to arrive to fix the problem? Invariably the school will have to seek a short term solution elsewhere, and at cost to the school. If the leased equipment continually malfunctions, can you terminate both the lease and service contract?

2.    Snow and swine flu..food for thought.

The snow that arrived before and after Christmas was greeted with delight by children (and probably dismay by most parents and the local hospitals) but it also impacted upon one Essex schools' catering contract.

Due to the adverse conditions the school had to close for several days. The caterer subsequently requested the school pay for those periods of closure for alleged losses that the caterer had suffered. This is a scenario not factored into this school's budget. Most schools pass on monies received by the pupils to the caterer. If the school is closed, therefore, it receives no income and has to look to another budget to find these costs, if correctly demanded.

The caterer in question had no provision within its contract to charge the school for these closure periods despite numerous demands upon the school to pay. The contract required the school to pay on a per meal basis and so as no meals were being served there was no obligation upon the school to pay. This school was also informed that it would have to pay for closure periods due to swine flu, again the school could utilise the same argument.

Therefore:

  • If you are being invoiced for days the school was closed, check your contract to see if you are legally obliged to pay, and how much. Some may limit to just staffing costs; and
  • Look out for this potential pitfall in any new catering contract that you sign; what are the school's liabilities for closure due to snow, swine flu, and events that are beyond the control of the parties?

If you have any queries concerning leasing arrangements, catering contracts or contracts in general please contact Giles Gilbert on 01245 506741 or Rebecca Palmer on 01245 506690 at Essex Legal Services.