An agreement is a mutual understanding. A contract is defined as a legally enforceable agreement between two parties, creating an obligation to undertake a specific act. Both parties must also have intended to create a legally binding and enforceable agreement.
Three Contractual Pillars: Offer, Acceptance and Consideration
It’s important to understand what’s being offered, by way of both service and price. Contracts can be mistakenly entered into on a perceived understanding of what’s required or how the work will be paid for. Fixed and capped cost payment mechanisms are obviously different, as are the requirements for a maximum and minimum liability, so it’s important that all nuances are clear.
If you respond with a different proposal to the one you received, the onus is then on the other party to respond to your offer.
Understanding the offer enables the other party to decide whether or not it’s prepared to accept or, alternatively, make a counter-offer. Any variation of the original offer should be considered a counter-offer, transferring the obligation to the original offeror. If you respond with a different proposal to the one you received, the onus is then on the other party to respond to your offer. Some parties seek an 'acceptance timescale' when negotiating a contract, on the basis that this provides fixed timescales for each stage. This enables the effective management of the process and avoids unnecessary delays.
Consideration is the cement which binds the offer and acceptance. The consideration must have a value attached to it, and this can be a monetary value or an action; for instance, a client paying the contractor for a deliverable and the contractor undertaking the work and being paid.
Should the Contract be in Writing?
Contracts need not be written, but there are obvious benefits to putting it in writing - clarity, for example. When writing a contract, the key is to ensure that all parties know what each provision means. Clear and plain language in short sentences will avoid confusion and misinterpretation at a later stage. Avoid legalese or Latin when common terms will suffice.
Consider the Document’s Format
Take time to organise the document. A table of contents and numbered paragraphs and pages are helpful, as is splitting the document into sections and using subtitles.
A standardised contract template such as JCT or FIDIC helps ensure clarity for both parties.
The contract needs to tell the whole story and nothing but the story. It’s vitally important that all relevant details are captured. Oversights can be amended, but this needs each party’s agreement. A standardised contract template such as JCT or FIDIC helps ensure clarity for both parties. However, be sure that all included clauses are indeed required and are relevant.
Unless specified, the contract will be governed by the law which applies in the country where the last signatory is made. When selecting which jurisdiction is to apply, be certain that your contract is enforceable in the jurisdiction, and that international contracts are not treated differently to domestic ones.
Resolution and Termination
There may be a need to resolve misunderstandings. Wise planning allows for the inclusion of alternative dispute sesolution methods, to avoid public litigation and needless expenditure. Mediation, adjudication and arbitration are useful alternatives.
Contracts are designed for a specific purpose and a defined timeframe, with each party discharging their obligations in a prescribed manner within an anticipated set of circumstances. A party’s failure to meet its obligations, or a fundamental change in circumstances, can affect the contract’s continued viability, so there should be a termination procedure to deal with this.
Make sure that the person signing has the appropriate authority to do so. Also ensure that the party is correctly identified and be clear on when contractual obligations commence and the deadline for delivering your obligations.
Clearly drafted contracts provide clarity and avoid misunderstandings.
And, finally, ensure that you use the correct ink colour. Black ink is acknowledged as best practice for photocopying purposes, but some organisations require the original to be signed in blue. If you have to sign or initial every stamped page, make sure you have the ink to complete the task!
Clearly drafted contracts provide clarity and avoid misunderstandings. Faithful+Gould’s extensive regional commercial experience ensures that project requirements are appropriately captured and unnecessary project-related costs are kept to a minimum.