Why it is worth having a written contract?
Having a contract can be beneficial for the following reasons, for example:
- Having a contract ensures that all parties understand the scope of the project or assignment, the timeline, and what each party is meant to do. A good contract also includes provisions on breaches, liability and delays to ensure that everyone knows what will happen if something does not go according to plan.
- Having a contract makes your business look more professional.
- In the event of a dispute, you have proof of what was agreed.
- Even if your contribution to a project is small, a mistake can lead to considerable losses.
Contracts with consumers vs. contracts with businesses
Private individuals
Private individuals are protected by consumer rights legislation that cannot be deviated from to the detriment of consumers. Make sure to read the Consumer Protection Act carefully before you sign a contract with a consumer.
Corporate customers
There is a lot more leeway in what can be agreed between businesses. For example, businesses can set a limit to the amount of damages that they will pay in the event of a breach of contract. Without a contract, dealings between businesses are subject to the provisions of the Sale of Goods Act and universal contract law, which places a lot of the responsibility on the seller.
Having a contract is especially important when businesses sell goods to each other, as the law does not provide clear solutions in the event of a dispute. It is therefore worth drafting contracts carefully in order to ensure that you know what you have signed up to and what will happen if something goes wrong.
International contracts should ideally be drafted by a lawyer specialising in international contract law. Additional challenges in the case of international trade can arise, for example, from choice-of-law provisions, which determine the country whose laws apply to the contract and whose courts will rule on any disputes. This is worth giving special attention to in order to avoid nasty surprises.
A few rules of thumb for drafting contracts
Written contracts are the cornerstone of corporate risk management, and key considerations include at least the following:
- Always insist on a written contract.
- Analyse the risks involved in the project or assignment and think about ways to manage them contractually.
- Read the terms and conditions to which you are agreeing and, if there is something that you do not understand, ask for an explanation.
- If your contract is subject to general terms and conditions, append them to the contract. See below for more information about general terms and conditions and incorporating them into contracts.
- Make sure that any subcontractors you are using also have adequate insurance.
- If necessary, consult a lawyer.
Before you sign a contract
- Check the other party’s credit rating and trade register entries.
- Find out about the laws that apply to your industry.
- Think about the risks involved in your business and whether those risks can be managed contractually. If necessary, consult a lawyer.
Contents of written contracts
Written contracts need to cover at least the following:
- The division of responsibilities between the parties
- The scope and timeline of the project or assignment
What will happen if something does not go to plan
- Provisions on breaches of contract, liability for damages and delays
- Limits to your own liability, taking into account what you can afford if something goes wrong
General terms and conditions
Many industries have agreed on general terms of contract, such as YSE 98 (construction), MET 03 (subcontracting), KL2004 and Tal2018 (accountancy), and KSE2018 (consultancy).
Using general terms and conditions makes contracts faster and cheaper to draft. However, always make sure that any general terms and conditions you choose to apply are actually suited to your industry and business.
Always read the general terms and conditions carefully so that you know what you are agreeing to. General terms and conditions often include provisions on the limitation of liability, which are worth reading with particular care. If there is anything in the terms and conditions that you do not understand, ask for an explanation or consult a lawyer.
General terms and conditions only apply if they are formally appended to the contract and have been given to the other party to read through before the contract is signed. Any general terms and conditions that are appended to a signed contract without the other party having had a change to familiarise themselves with them beforehand are not binding.
The easiest solution is to append any general terms and conditions that you want to apply to both your quote and the final contract. For example, simply mentioning that the applicable terms and conditions can be found on your website is not enough.
