Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.
Matthew is a partner at VWV in the Commercial Law team. He has worked in the education sector for over 21 years, and with academy trusts since 2007, and has significant experience in general commercial law as well as public procurement advising on everything from individual contracts through to overarching strategic support.
In the first of two blogs on this subject, Matthew will be looking at key things you need to consider when entering a contract and specifically what a contract actually is and what it must contain. We all read them and we all have them but they can be confusing, and this blog aims to demystify the process and provide you with support so that you know exactly what you are looking for.
In a second blog, Matthew look at key terms, what they mean in practice and what to look out for.
When you enter into a new contract, usually there are three main things that happen.
- Either you produce a bespoke contract, specifically drafted for what you’re doing
- You take a contract you’ve used before and you change the name and some of the details or
- You sign what the provider gives you
It is easy to use providers’ standard terms and conditions as it reduces the work you need to do. However, they are almost invariably highly biased in favour of the provider. They can also contain terms which can be commercially unreasonable and unacceptable – unfortunately it often only transpires that there’s a problem when a problem arises and you need to rely on them.
We would always caution against blindly signing providers’ standard terms and conditions. However, in the worst case, if that’s the way you need to proceed, do make sure you review them. Do not forget that, if you’re not dealing with the Microsoft and BTs of this world, it is usually open for you to change those terms and conditions by striking some of them out or agreeing to amend them.
It can be efficient to use a contract you have used before, but make sure that it is fit for purpose and reflects what you want from the provider – do not just change the names of the parties at the top of it.
In an ideal world, the best way is usually to draft a new contract specifically for a project. However this may not be cost-effective, especially for a low value contract. The more expensive, the more time-consuming, and the more valuable a contract is to you though, you may want to consider looking at a bespoke contract.
So what is a contract?
A contract is a legally enforceable agreement, which gives rise to rights and duties among those who agree to its terms. It may be referred to by various names such as a service level agreement/appointment/letter of engagement etc. but, regardless of terminology, if it meets the criteria set out below then it’s a contract and it will be legally binding.
Other documents, sometimes called heads of terms, letter of comfort, letter of intent, memorandum of understanding are not intended to be a legally binding contract. In order to ensure this is the case it’s very important to state clearly within the document that it IS NOT intended to be legally binding. If you state that then it will not be a contract and it will not be enforceable. Although there is no real legal benefit in entering into a non-binding agreement, in practice it can be useful to have a document whereby you’re setting out, in a non-formal way, the principles of the relationship, so that you can then use that to draft a proper contract.
There are five tests for whether a documents constitutes a contract.
- There has to be an offer from one party to provide goods/services
- There has to be an acceptance from the second party of what is being offered. In the real world, it tends to be that one party offers to provide a service in return for a fee – that’s the offer. If the other party accepts it and they sign a contract, that is offer and acceptance.
- There has to be consideration, which is the legal word for both parties have to be putting something in and getting something out. Again, the usual way that works is that the provider is providing a service and the client is receiving the benefit of that service. The client is paying money so the provider is receiving the benefit of receiving that money.
- There has to be intention to create legal relationships. If there is a signed agreement between two parties, clearly there was an intention to create a legal relationship (unless it specifically states otherwise).
- There is also a requirement to have certainty of terms. Although that is theoretically a legal requirement of a contract, it is often the case that certain terms are not very clear. However on its own this would be unlikely to mean a document would not be considered a contract.
Oral Contracts
It is possible to have an oral contract. Just because you haven’t signed anything, it doesn’t mean that there isn’t a contract in place. If a service has been provided and you have been paying for it, there is a contract in place. However, what it means is there’s no certainty as to what those terms are, which leads to grey areas and ambiguity. On that basis it’s always strongly recommend to have a written contract.
Unsigned Contracts
If you have an unsigned contract it does not mean that a contract is not i place. If the service has been provided and you have paid for it, again a contract exists. The only issue is the terms are potentially unclear as the contract has not been signed, albeit that the default assumption would be that the unsigned contract sets out the legal terms.
Who should sign?
It needs to be someone that’s authorised, and that is down to the client’s internal procedure. Whoever is signing it they must have the authority to enter into it. If not, potentially it can still bind the client but the person that signed it can be personally liable.
Variations
If you are varying a contract YOU MUST make sure you document what those changes are. Ideally it needs to be in writing and signed by both parties, or at least acknowledged by email that this is the variation agreed to. You should ensure that it sets out clearly what the change is – e.g. what you are asking them to do differently and the cost. The more detail you can set out, the less room there will be for future arguments.
Matthew did an excellent webinar with us on this subject which you can also watch – and get the benefit from some insightful and interesting questions from the audience.
