If the client is keen for you to start work as soon as possible, before the written contract has been signed, your verbal agreement is still valid but you may be left exposed to liabilities that could cost you dear, as Victoria Pope explains.
I own an on-site catering firm and have been talking to a local business with offices about running its in-house cafeteria.
The business is keen for me to go on-site as soon as possible and they want me to fund some improvements to the cafeteria. I want a signed contract first, but the business is really pushing me to start. I am worried I will lose the client if I say I can't do anything until a contract has been signed.
If a written contract hasn't been signed, it doesn't mean that a contract doesn't exist. All that is needed to have a contract is:
- an offer from one party to the other;
- acceptance of the offer;
- consideration (generally one party needs to act or accept an obligation, which can include providing a service); and
- an intention to create legal relations.
Here, if the on-site caterer starts work, it is likely that the company will have entered into a contract with the client business. However, the terms of the contract will be uncertain. The best way to ensure a level of certainty is to negotiate a formal agreement with the client and make sure that it is signed before services start.
Remember, too, if you are taking over employees that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply across all employment liabilities to the new supplier. This includes liabilities before the transfer, so the new supplier is liable for any unpaid wages or employment claims which may have arisen before it took over.
If the catering company doesn't reach agreement with the client on the terms of the contract before it starts, some or all of the following issues may arise:
Setting up catering outlets involves a lot of preparatory work. If the company begins to mobilise without agreeing formally with the client who will pay, the company will be in a weak position when it tries to negotiate down the line and may well be left picking up the bill.
Period of services
If agreement on this has not been reached, the company is exposed if the client wants to pull out. A signed contract would agree a guaranteed or minimum period and a price on this basis could also confirm the appointment is exclusive.
The company runs the risk of unknown staff (and their associated liabilities) transferring to it under TUPE. The company may be able to negotiate an agreed list of transferring employees and indemnity provisions to protect against unwanted staff liabilities to be placed in a signed contract.
Construction work and assets
As the client has requested improvements, the company may be arranging some capital expenditure work. Without a formal contract, it will be difficult to agree detailed issues such as who will pick up the cost, how the cost will be clawed back and who will own the assets.
If processes aren't agreed to deal with these risks, issues and costs, the company may find it difficult to agree with the client at a later stage.
- Think about the issues that need to be agreed and incorporated in a written contract.
- Be aware of contracting with a client without realising - what you may be promising when dealing with your client?
- If there are still things to agree (eg, scope of capital expenditure work), make sure that clear mechanisms are included in the contract for agreeing these.
Victoria Pope, solicitor, Stevens & Boltonvictoria.firstname.lastname@example.org
Tel: 01483 406964