Using a contract

Agreeing a contract

The following points relate to negotiating and agreeing a contract:

  • Accept from the beginning that the interests of both parties can never coincide on every detail. This means that if a fair contract is to be concluded, both parties must be prepared to compromise.
  • To both parties, some points are usually non-negotiable; for example the price or time-scale. If one of these fundamental points is not accepted by the other party, be prepared to lose a deal rather than put up with one you will regret.
  • Familiarise yourself in advance with the types of contracts that have been used in the past for similar arrangements.
  • Before commencing negotiations, write down the most important points you need to agree.
  • During meetings take notes of the points covered and at the end read them back to the other person to ensure there is a mutual understanding of what has been agreed. Then confirm those points in a letter as soon as possible afterwards.
  • Keep copies of all correspondence.
  • Never agree to something, in writing or verbally, when you know you still have points to discuss and agree. Beware of signing something at an early stage which later turns out to be a contract.
  • If a letter or proposal from the other party contains something you cannot agree to, always respond promptly by saying so.
  • Tactically, it is often better for you to prepare and send the other party the contract you want, rather than wait to get the other party's version. If you have to react to another version this will put you immediately on the defensive since you will have to find reasons not to accept what the other party wants.
  • When all important issues have been discussed and agreed, make sure these are embodied in a contract or exchange of letters, which is signed by both parties.
  • Letter contracts are contracts like any other, and just as effective provided they are signed by both parties. In fact they can be very useful, since because of their informality they are often less off-putting, and therefore easier to conclude. If you are using a letter contract, it is best to write at the end words such as: "If you are happy that this letter accurately reflects what we have agreed, please sign and return the enclosed spare copy of this letter". You should then send two signed copies, the second with a space at the end for the other person to sign with the words AGREED TO written above the space.
  • Avoid side letters and other agreements or understandings outside the contract itself. The contract should contain everything.
  • Never start work (or take any action to start your side of the bargain) if you are not happy with any term of the contract. If you start work despite your objection, it will be very difficult for you to argue later that you did not accept it.
  • If you think that the other person may not sign the letter/contract, or may take a long time before letting you know, you might consider sending out the two copies of the letter unsigned, asking the other person to sign both copies and send one back to you for countersignature. If you do this you will not have signed anything until the other party has, making it easier for you to withdraw if there is a delay.
  • If the other person does not send back your letter signed, but replies with his/her own version: compare the two and if there are no differences in meaning there will be a valid contract. Keep the other signed version and a copy of yours.
  • If the other person writes back with terms which differ from those you agreed, you should write back saying that since there is no agreement, there is no deal.
  • If the other person does not reply at all, your earlier verbal contract is theoretically still valid, but before you carry out your end of the bargain (eg by buying materials or starting work) it is better to insist that your letter is signed and returned. The other person's refusal to do this may indicate a change of mind about what was agreed verbally and an unwillingness to fulfil their side of the bargain.

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