Contractors' Questions: How to draw up a contract?
Contractor's Question: My husband, an IT contractor, has always gone through agencies and therefore we have never had to sort the contract agreement. However, he has now been offered to do some work for a company without the help of an agency so he needs to know how he should go about creating his own contract agreement between his limited company and the company he will be doing work for. What are the basics that any good contract agreement should contain?
Expert's Answer: A contract is a legally enforceable agreement giving rise to obligations for the parties to it. The four basic elements required for a contract to exist are:
1. An offer;
2. An acceptance;
3. Consideration (that is the monetary return for the performance of the contract); and
4. An intention to create legal relations.
Whilst it is not a necessity that the contract is written, it is always advisable that it is written. This will ensure that the exact terms are recorded in writing, ensuring that all parties are clear about their obligations and any future disputes based on what exactly was agreed between the parties can be avoided as best as possible.
The parties to the contract can agree to any terms of the contract (as long as it does not breach any rule of law or is illegal). Terms your husband should consider include:
1. Term (or length) of the contract;
2. Responsibilities of each party (this is particularly important that there is a clear demarcation of roles. If your husband will be working with other employees of the company that is hiring him this is important);
3. Amount and method of payment (the consideration) - payment should normally be within 30 days of presenting your invoice with interest charged for late payment;
4. Ability (or inability) for the parties to sub-contract or assign the contract to a third party;
5. Termination of the contract, for example termination for non payment of fees which is important, and consequences of termination.
This is a non-exhaustive list. There are many other terms of the contract which should be considered.
Also, some of the terms may be contested. For example, the buyer may want you to pay liquidated damages for delay and you may not agree to this. On the other hand, you will want to limit your liability for any default and the buyer may not agree to the limit which you seek. This is all a matter for negotiation.
If your husband will be an employee of the company, then additional requirements, to fulfil the criteria of the Employment Rights Act 1996, will also be required.
The expert was Simon Bennett, partner at Fox Williams, a business law specialist.
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