Entering into contractual arrangements for the supply of services is an everyday occurrence for facilities managers and FM service providers – even when they don’t realise it. Too often people mistakenly believe that there is no binding contract in place between parties unless and until a contract document has been negotiated, agreed and signed by authorised representatives.
Wrong. By law, a contract is formed when the following key elements coincide: offer; acceptance; consideration; an intention to create legal relations; and certainty of terms. These constituent parts can come into play in ways other than in writing such as verbally and through actions. For example, ‘acceptance’ (a final and unqualified asset to an offer) can be given and communicated via conduct. So, if a customer has proposed their standard terms as the basis for the contract and the FM provider commences delivery of services before it makes clear that it wishes to negotiate the terms, so long as the other key elements of the contract are in play, it is likely that a contract will be formed.
Determining when, where and how a contract was formed often becomes important during the life, or at the end, of the contract (especially when it comes to matters such as jurisdiction and governing law). To ease the inevitable pain surrounding contract administration, it is always best practice to ensure that all contractual terms are recorded in one written contract document and signed by both parties before services commence. Any FM provider that has found itself having to terminate or, heaven forbid, litigate a contract that hasn’t been neatly recorded in one written document will already know that.
Once the contract has been formed and the service is live, it is not unusual for parties to want to make changes in areas such as service scope and description, agreed milestones, and pricing structures. When a contract is being operated successfully and there is a degree of harmony between the customer and the FM provider, it is easy to see how and why the parties may seek to verbally agree modifications to their contract to suit their wants and desires at a particular point in time. However, FMs take note: if you take this laissez faire approach to modifying a contract, you could be in for a headache if relationships sour further down the line. Often, contracts contain express clauses that place formalities around how the terms can be changed, usually specifying that any variation must be in writing and signed by both parties. The aim of clauses like this is to exclude the possibility of informal, and perhaps inadvertent, oral variations being made to a contract. Recent case law has seen the validity of this type of clause debated by the courts, with the Supreme Court ruling that contractual provisions requiring specific variation formalities must be complied with.
Always be clear about what constitutes a contract, don’t enter into a binding agreement when you only intend to come to an understanding in principle, and never take a relaxed approach to contract variations or it might just come back to bite. These are vital lessons for anyone negotiating or mobilising new services.