The benefits of a written contract

A contract can be anything from a formal written document to a purely verbal promise. For example, a contract could be made simply because of a handshake deal to do a job where the only thing in writing is a quote on the back of an envelope.

 

Whatever its form, if you agree to provide a service to a hirer for money, you have entered into a contract. You are promising to do a job for the hirer and the hirer is promising to pay you for it.

 

A contract is a verbal or written agreement to do work in exchange for some benefit, usually a payment. The agreement is able to be enforced in the courts.

 

Written contracts
Written contracts provide more certainty for both parties than verbal contracts. They clearly set out the details of what was agreed. Matters such as materials, timeframes, payments and a procedure to follow in the event of a dispute, can all be set out in a contract.

It is much safer to have something in writing than to rely on someone’s word. A written contract will give you more certainty and minimise your business risks by making the agreement clear from the outset.

 

Benefits of a written contract
A written contract can:
• provide proof of what was agreed between you and the hirer
• help to prevent misunderstandings or disputes by making the agreement clear from the outset
• give you security and peace of mind by knowing you have work, for how long and what you will be paid
• clarify your status as an independent contractor by stating that the contract is a ‘services contract’ and not an ’employment contract’. This will not override a ‘sham’ contract, but a court will take the statement into account if there is any uncertainty about the nature of the relationship
• reduce the risk of a dispute by detailing payments, timeframes and work to be performed under the contract
• set out how a dispute over payments or performance will be resolved
• set out how the contract can be varied
• serve as a record of what was agreed
• specify how either party can end the contract before the work is completed.

 

When a written contract is essential
It is always better to have your contract in writing, no matter how small the job is. Any contract with a hirer that involves a significant risk to your business should always be carefully considered and put in writing. This is advisable even if it means delaying the start of the work. A written contract is essential:

 

• when the contract price is large enough to make or break your business if you don’t get paid
• where there are quality requirements, specifications or specific materials that must be used
• where there is some doubt that the hirer has enough money to pay you
• when you must have certain types of insurance for the type of work you are doing
• where the contract contains essential terms, such as a critical date for the completion of the work before payment can be made
• where you or the hirer need to keep certain information confidential
• when it is required by your insurance company for professional indemnity purposes
• where there is a legal obligation to have a written contract (eg. trade contracts for building work in Queensland).

 

Next week we’ll be continuing along this topic and talking about verbal contracts and the associated risks. If you have any further questions, contact us at info@pendragon.net.au

 

Post by Pendragon

Leave a Reply

Your email address will not be published. Required fields are marked *