7. Performance obligations

Performance obligations specify who is to do what, where, how and when.

An express provision that "time is of the essence" of an agreement enables the party relying upon the clause to terminate the agreement and, if appropriate, claim damages, if the other party fails to perform an obligation in accordance with the date or time specified in the agreement.

Many contracts require a party to achieve a particular objective, or procure its achievement. If the obligation is not qualified, it will amount to an unconditional undertaking by the relevant party that the objective will be achieved, regardless of how onerous it is for that party to achieve it, or even whether it is within that party's power to do so. Accordingly, it is common to see such obligations qualified by an endeavours clause, where a party agrees to use some form of endeavours, or efforts, to achieve the specified objective.

One of the key questions to ask in the context of who does what, when and where, is: What happens if the party fails to perform? One solution is to add a liquidated damages or service credit clause to the agreement.

Liquidated damages clauses

A liquidated damages clause usually provides that, if a supplier fails to complete a performance obligation by a certain date, and the delay does not relate to causes beyond the reasonable control of supplier, then the supplier is obliged to pay to the customer a predefined sum for every week or month of delay. Alternatively, the customer might be entitled to deduct such the amount of liquidated damages from any amounts due to supplier, or recover the same from the supplier as a debt. The aim of a liquidated damages clause should not be to put the supplier into liquidation, but rather to encourage the supplier to divert resources to a speedy completion of the customer’s contract, rather than to the contracts of other customers.

Service credit clauses

A "service credit scheme" is in effect a liquidated damages scheme for services rather than supply of goods. The idea is that if a certain targeted level of performance is not achieved by the supplier, say, during the previous month, the supplier must pay to the customer, or allow the customer to deduct from its payment to supplier, a certain percentage, normally of the monthly fee.

8. Payment obligations

Payment obligations specify who pays what, how, when and where. The main consideration from the supplier's point of view is that the lawyer drafting the contract goes into the mechanics of what sort of payment will protect the supplier in the particular circumstances of the case. Minimum payment details might include:

• Prices or amount of payment.

• Whether or not prices include VAT or other taxes.

• Frequency of multiple payments.

• Method of payment - bank transfer, letter of credit.

• Currency of payment.

• Country of payment.

• Name of bank and account details, with an ability to change these details on notice.

If the customer doesn’t pay or doesn’t pay on time, the supplier may try to protect itself by using such mechanisms as default interest, retention of title, third party guarantee, letters of credit.