The risks of contracting without a written contract in place

Not all contractors begin work with a signed contract in place. Here, we consider the risks this may entail and why a contract need not be in writing to be legally binding.

Thanks to legal experts Taylor Rose for answering our questions.

Should you always have a contract in place when providing professional services to a client?

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, concise foundation to help you navigate the law and ensure 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 the invoice and payment dates.

It also means the contract is legally enforceable and will support you if you decide to pursue 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 and terms and conditions drafted by a professional, but the potential cost of doing business with them later far outweighs that.

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 the correspondence between parties, if performance of parties supports 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 agreements (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 a contract to be signed electronically and be returned in a matter of minutes (although there are certain contracts 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 is made verbally and a disagreement over the terms arises later?

Irrespective of whether you had a written or verbal agreement, in some circumstances, there are legal rights that apply. If the dispute concerns goods supplied, a buyer may be protected by consumer law. For services, our consumer law provides 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 as the discussion, it is good practice to obtain written confirmation of a verbal contract at a later date.

A verbal agreement becomes binding when the agreement 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 broken can be taken to court; the unhappy party is advised to apply pressure through letters, emails, and phone calls.

Copies of all forms of the 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 plan to use only written agreements, it is best practice to have them drafted by solicitors with extensive expertise 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 now require partial payment before services or goods are delivered to prevent situations where there was never any intention to pay.