Not all contractors start work with a signed contract in place. Here we consider the risks this may involve, and why a contract doesn’t necessarily have to be in writing for it to be legally binding.
Thanks to legal experts Taylor Rose for answering our questions.
Should you always have a contract in place if you provide professional services to a client / customer?
Yes, absolutely. Starting work without a signed contract means that your position isn’t clear, or even worse –it’s weak.
It provides a solid and concise foundation that will help you navigate the law and make sure that you are on the right side of it. Along with aiding to minimise disputes and resolve any problems that may arise; a contract will communicate to a client, not only the amount that they are required to pay, but also invoice and payment dates. It also means that the contract is legally enforceable and will be able to support you if you decide to take legal action.
Written contracts set out the rights and obligations of each party, and reduce the risk of uncertainty. Many businesses are put off by the cost of having a contract as well as terms and conditions drafted by a professional – but it far outweighs the potential cost that doing business with them could threaten later.
Does the contract have to be a formal written document, or can an email conversation suffice?
Most people don’t realise that a contract doesn’t HAVE to be written to be legally binding, although you may have trouble getting these enforced as there is nothing tangible to state what the terms and conditions of the contract were.
Email conversations can work as courts would look into correspondence between parties, if performance of parties support it, for example there are certain consumer contracts that are legally required to be in a written format; these include contracts for regulated consumer credit agreement (loans and credit cards), guarantor agreements and mortgages.
If an email is clear in stating the offer for entering into a deal with clear terms and conditions and the other party responds with an acceptance, there is a strong chance that this would be considered a valid contract; however we would urge all businesses to use formal written documents that protect themselves and their assets within a contract.
There are many advances in technology that allow contract to be signed electronically and be returned in a matter of minutes (although there are certain contract that cannot be signed this way – wills, evictions and divorces to name a few), cloud computing has also made it virtually impossible to lose or damage these documents.
What happens if an agreement has been made verbally, and a disagreement over terms occurs further down the line?
Irrespective of whether you had a written or verbal agreement, in some circumstances there are legal rights that apply. If the dispute is over good that’s are supplied, a buyer may be protected by consumer law, and with regards to a service, our consumer law gives us certain rights.
It boils down to what you can prove supporting the terms themselves by way of inference from the conduct. If you are unable to obtain a contract drawn up at the same time the discussion takes place, it is good practice to get written confirmation of a verbal contract at a later date.
A verbal agreement becomes binding when the agreements reaches ‘completeness’; this means that all the T&C’s have been met and agreed – if there are still terms to be agreed then the agreement is considered to be incomplete.
A verbal agreement that is considered to have been broken can be taken to court; the unhappy party is advised to apply pressure by form of letter, email and phone calls. Copies of all forms of contract should be kept if the matter does go to court, as the actions and conduct of the parties involved will be taken into consideration.
What best practice contractual advice would you give to a consultant, dealing directly with a new client?
If you are going to ensure that you exclusively use written agreements, it is best practice to have them drafted by solicitors with extensive knowledge in business/commercial law. Poorly drafted contracts are often no clearer than verbal ones, and can present just as many difficulties when it comes to ambiguity.
Before any work or exchange is carried out, the contract should be signed by both parties; starting work without a signed contract poses risks.
Some businesses are now demanding partial payment prior to services or goods being delivered to eliminate circumstances where was never any intention of a customer or client paying in the first place.