Throughout our lives, we are surrounded by and governed by contracts of all shapes and sizes; however, we probably take little time to consider what a contract is and what terms are contained.
Whether as a first-time or a seasoned contractor, your overarching contract with your client (or agency, as the case may be) is very important to your success as a contractor and your overall business relationship.
In this article, we explain the legal requirements of a contract so that you can distinguish between the fundamentals and the mere ‘nice-to-haves’, which may also be helpful as a negotiating tool.
What exactly is a contract, and how is one formed?
A contract’s core elements may differ from what you think. The law will imply a legally enforceable contract between two parties where it finds that all four of the following elements exist between them:
- Consideration is ‘the price for the promise’ – this does not necessarily need to be monetary, although it commonly is.
- Intention to create legal relations
A contract does not need to be written down for it to come into legal existence. If the four elements above are all found, then an enforceable contract is in place insofar as English Law is concerned.
Why do we have such long written contracts?
The main reason that we enter into lengthy written agreements is for the key purpose of contractual certainty.
Whilst an informal (or even oral) exchange of words merely satisfying the above four criteria would still create a binding contract, we hope that by expressing the agreement in long hand-written form, any potential ambiguity in the deal will be removed to the extent reasonably possible.
In other words, the lengthy written contract isn’t generally there because of legal requirements. It’s there to create a comprehensive framework by which the parties can reach an agreement and do business, knowing that every possible area of potential dispute has been addressed in advance.
Of course, the traditional written contract also allows both parties to sign the contract as a clear commitment to be bound by its terms.
What are the most important aspects of a contract?
To some extent, this will depend on the nature of the specific deal. However, some common aspects are found in most contracts, which are generally considered quite fundamental irrespective of the background and context.
Some examples are as follows:
- The parties’ rights
- The parties’ obligations
- Delivery timescale and deadlines
- The contract fees and payment terms
- Limitation of Liability clauses
- Data protection
- Compliance clauses such as Anti-Money Laundering and Anti-Tax Evasion, etc
- Any post-termination restrictions
Which clauses should I negotiate hardest for?
Depending on your situation, you may place more importance on specific clauses and less importance on others.
Likewise, your negotiating counterpart will inevitably do the same, but the parties’ respective scales of importance won’t necessarily align.
Naturally, this equilibrium or imbalance will dictate the scale and progress of the negotiation.
Whereby one party may see specific clauses as minor ‘nice to haves’, they are more likely to give way to those clauses.
By contrast, if a party considers certain clauses to be ‘deal-breakers’ or ‘red lines’, they’ll inevitably be far more intransient in their approach towards them.
How should I approach the contract negotiation?
The key to the contract negotiation is, in the first place, to;
- Read through the draft agreement carefully (including all the vital definitions) whilst making notes on any areas of concern
- Take any legal advice as may be necessary
- Plan the negotiation, explaining your position on any contentious points
The trick is to concede ground on areas that are unimportant to you but important to them; this tactic gives your contracting party the feeling of victory on those points without damaging your cause.
It also helps you gain ground on points you may have requested that are important to you.
Like any other negotiation, with a contract discussion, you want to create a ‘win-win’ situation where both parties feel happy and content with the final version.
If you would like advice and support regarding drafting or reviewing a contract, you should reach out to a commercial lawyer with appropriate expertise.
LawBite has experienced lawyers who can help you with all commercial, corporate and employment contracts.
About the author
Ashley Gurr is a commercial and business contract lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on commercial contracts and a multi-national utility giant in a contract strategy role.